Draft places new curb on developers

Updated: 2011-08-13 09:30

By Zheng Jinran (China Daily)

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BEIJING - A proposed regulation would make property developers in China subject to higher standards and impose stiffer penalties on them if they fall short.

The Ministry of Housing and Urban-Rural Development issued on Wednesday a revised draft of a regulation stipulating what qualifications property developers must meet to operate legally. If approved, the regulation will require real estate companies that are considered to be grade A, the highest grade, to have at least 200 million yuan ($31.3 million) in registered capital.

"These changes in the draft come in response to developments in the property industry," said Gu Yunchang, vice-president of the China Real Estate Association. "Considering their remarkable profits and how big these developers are, the amendment is being released at a good time."

The proposed regulation would impose fines ranging from 10,000 yuan to 30,000 yuan on real estate companies that hoard land, delay property sales for no good reason, and engage in price gouging and commit other illegal acts. Their legal status as a developers could also be lowered or revoked.

Learning of the fines, many people said they aren't big enough to influence the behavior of giant property companies.

Jin Jian, a managing director of Shanhaishu Group, a large player in the real estate industry, said: "It sounds like a joke."

The regulation is still subject to change.

"It's only a draft," said Bi Jianling, director of the Ministry of Housing and Urban-Rural Development's publicity office, on Thursday.

"We are soliciting public comments now. So it's understandable that people would voice their concerns about the amounts of the fines and the effects of the regulation.

"More so than the fine, the more powerful and effective punishment will be that (developers') business licenses can be withdrawn. They may then be kicked out of that profitable industry."

The type of work a property developer can legally undertake depends on what qualification grade it falls into.

"The fine won't hurt anyone," Jin said. "But if your company is labeled as a speculator, you'll pay a huge price in your market performance, since your reputation will have been greatly damaged."

To make the draft more effective, Gu called for the creation of a national system to rate the credit of developers.

Recent market data indicate that the demand for real estate has not diminished. By Wednesday, 20 of the real estate developers listed in China had released their semi-annual reports, which showed that their property inventories had increased by 46.3 percent compared with a year ago. That brought their value to 317.76 billion yuan in the first half of 2011, according to Wind Information, a Shanghai-based financial data provider.

Bigger property inventories and stricter bank lending may put developers, especially small ones, under pressure to try to stimulate sales by substantially lowering prices in the second half of this year, an analyst told Xinhua on Thursday.