Punishment needed for unused land

The Ministry of Land and Resources issued revised measures to deal with unused land, with clear rules to define and punish the owners of unused land, says an article in the 21st Century Business Herald. Excerpts:

Land purchasers will be charged 20 percent of the land price as a fine for leaving the land unused if they do not start construction a year after buying the rights to use the land. The right of use will be taken back by the State if they leave the land unused for two years. The rule will be in place starting next month.

Measures dealing with unused land were actually issued over 10 years ago. According to the old measures, owners could invoke two types of reasons to hold unused land - enterprise reasons and government reasons, with the latter exempt of all penalizations. This was used by real estate developers to their advantage - most of the land was said to be unused due to government reasons.

Although is it still possible for developers to find excuses to not develop land under the new measures, the new document can be used by local governments to urge developers to start construction projects as soon as possible. Governments have enough reasons to do it because the land market is still an effective driving force for local economic growth.

In most cases, local governments get only the upfront money for the land transfers and they do not get all the money until the developers sell all the commercial houses built on the land. That is to say, local governments do not benefit from unused land at all. In contrast, real estate developers get huge benefits from leaving the land unused for a long time, during which the land prices and housing prices increase. To some extent, this is a safe and lucrative speculation activity, hijacking both governments and house buyers.

The governments then need to transfer more land in a bid to maintain their revenue, because they can only get the upfront money for many land transfers. This is a vicious circle, which benefits only the speculators.

A recent survey showed that about 3.81 million commercial houses sold in Beijing are empty, almost one-third of the total. The new measures should also alert local governments to the fact that land finance is not the right choice for sustainable development in the long run and that they should find the right development model according to local conditions, instead of relying on the property market bubble.

Translated by Li Yang.