Friday, June 8, 2012

China forces land owners to start construction or pay a 20% fee

How does China push through stimulus without calling it that? The massive 2009 regional stimulus is often blamed for China's spike in inflation and numerous bad loans. And pumping central government money into construction projects and other stimulus makes some people uneasy - although that may still happen. Instead the government is forcing developers to start construction work on their empty lots - or pay a 20% vacancy fee.
China Daily: - The central government has issued a regulation requiring mainland property developers to pay a 20 percent land vacancy fee if they leave land vacant for over a year, a policy which may further squeeze the general liquidity of mainland developers, the majority of whom are listed on the Hong Kong stock market, and particularly hit debt-laden companies hard.

Starting next month, developers who have not started construction work on any land in accordance to the new policy will be slapped with the levy, according to the new rules promulgated by the Ministry of Land and Resources (MLR) issued on Thursday.

Under the regulation, developers’ vacant land will be defined under three categories. First, it relates to those developed land area which are less than one-third of the total construction area, or second, the land’s investment capital outlay is less than 25 percent of the total investment amount, or third, the land on which construction has already been terminated for over a year.

The 20 percent land vacancy fee is calculated based on the value of the total land cost, according to the MLR.
Buying land in China for speculation will become a thing of the past unless people feel the appreciation will be more than 20% a year. In fact this new rule will clearly put significant downward pressure on land prices as developers who have limited resources and access to capital will try to sell their vacant land.
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