China Issues New Rules Restricting Land Banking

In yet another occurrence of one of my favorite China legal paradoxes, the central government has issued new regulations further restricting land banking — a practice that was already largely prohibited through a 2005 measure that was widely ignored and seldom enforced. Passing a new, even stricter law, to replace a law which had been ignored by those charged with its enforcement strikes me as being somehow akin buying new and higher quality paint to cover up the water damage in your ceiling without first investing in a few new shingles for that roof.

In any case, according to a Bloomberg story in Business Week, here are the details of the new regulations,

Land holders should start building on sites within three months from receiving the order, the Ministry of Land and Resources said in a statement yesterday, seeking public opinions. Land sitting idle for a year will incur a penalty of 20 percent of the price, while the government may reclaim the unused land after two years without compensation, it said.

China introduced rules on idle land in 2005, though they weren’t enforced properly because of the interests of local governments that are usually intertwined with those of developers, said Fu Qi, a Shanghai-based analyst for China Real Estate Information Corp., a property data and consulting firm. About 40 percent of local governments’ revenue last year came from land sales, according to the firm.

Whether or not local governments will be more willing to enforce these new measure remains to be seen. The new directives did not indicate any new measure to make the rules more enforceable and if local governments dug in their heels against the 2005 rules, then the new, stricter measures are likely to meet even greater resistance.