Land in China is either owned by the State or by collectives. Collective ownership arose out of the land reform movements in the 1950s, and remains relevant only for rural areas. All other land is held by the State with “owners” only holding rights to use the land.
There are two types of Land Use Rights in China: Allocated Land Use Rights and Granted Land Use Rights.
- Allocated Land Use Rights are indefinite usage rights subject to expropriation on demand and to limitations against leasing, mortgaging or otherwise transferring of the rights. Foreign investors are not permitted to occupy Allocated Rights land unless it is injected by a local party into a joint venture (and properly approved) or the Land Use Rights are first converted into Granted Rights.
- Granted Land Use Rights allow land to be used for a fixed period (50 years for industrial land) and approved purposes, in exchange for a fee to be paid to the government. Granted rights may be leased, transferred or mortgaged in the open market for a term not exceeding the term the remaining term that has been granted by the State. For most intents and purposes, granted land use rights are freely transferable.
Methods of Land Grants in China
While the government previously allowed land to be transferred from the government to private holders by agreement, regulations now dictate that all Land Use Rights are granted by way of a public auction; held by the land bureau of the relevant local government. The Land Use Rights are granted to the bidder with the highest bid (in the case of industrial land, the competing bidders are often phantom bidders. The successful bidder will be asked to enter into a written contract providing for the grant of the Land Use Rights. Upon signing the contract, the grantee is required to pay the land premium and the contract is submitted to the local bureau, which then issues the Land Use Right certificate.
Upon expiration of the term, the grantee may apply for its renewal. Because China has not yet had to deal with questions of expiration or renewal, the exact requirements and procedures are not known. Although provision exists for the rights to be renewed, renewal is presently discretionary and government policy remains unclear.
Title Documents and Registration
In the PRC, there are two types of registration for real estate:
- Land registration is achieved by the issuance of a Land Use Right Certificate by the relevant organization to the land user. The certificate serves as evidence that the land user has obtained Land Use Rights that can be assigned, mortgaged or leased.
- Building registration is the issuance of a building ownership certificate to the owner. This serves as evidence that the owner has obtained building ownership rights in respect to the building erected on a plot of land.
In 1998, the government decreed that all duly registered Land Use Rights and building ownership rights are protected by law. In most cities these registration systems have been maintained separately. However, Shanghai is among a few major cities to consolidate the Land Use Rights Certificate and the building registration into a single composite Real Estate and Land Use Right Certificate.
Land and Building Pricing
The Chinese government implemented new land pricing policies in Q1 2007 to help eliminate land use right abuses. According to the regulations, land prices are determined based on their location and their scope of development. Each is rated according to the city in which it is located as well as on a scale from 1 to 12, with 1 being the most expensive land. Industrial land prices in China effectively range from US$30.00 to US$150.00 per sq.m. of land; normally with a plot ratio/floor area ratios (FAR) of 30% to 150%.
Building prices and rents are not dictated by government policy, but vary according to market conditions. They also depend on location, quality and development density; ranging from US$200 to US$750 per sq.m. of gross floor area for purchase or US$1.50 to US$5.00 per sq.m. of gross floor area per month for rent.
CresaPartners is an international corporate real estate advisory firm that exclusively represents tenants/space users and specializes in the delivery of fully integrated real estate services. For more information, go to their website at www.cresapartners.com.