Land-Use Rights in Mainland China: Problems and Recommendations for Improvement

By Chan, Nelson | Journal of Real Estate Literature, January 1999 | Go to article overview

Land-Use Rights in Mainland China: Problems and Recommendations for Improvement


Chan, Nelson, Journal of Real Estate Literature


Abstract

The Chinese property market is founded on a land use rights (LUR) system that is based on the Hong Kong leasehold system. It was first tested in the Shenzhen Special Economic Zone. The positive result led to the formal revival of the property market in mainland China in 1990. Coupled with the open-door policy, this new tenure system has brought about marked changes to the real estate environment in mainland China. There has been a number of papers about the LUR system. Among the writers, Walker and Li (1994) have written on "Land Use Rights Reform and Real Estate Market in China." This article is intended to be an extension to Walker and Li's work and focuses on the problems associated with the LUR system. It concludes with recommendations for improvement.

Introduction

Before the new China was born, there were active property markets in mainland China. In addition to the old land tenure system inherited from the Qing dynasty, there were land tenures brought in by foreign powers in the occupied areas. Soon after the founding of the new China in 1949, communists rewrote the Constitution to vest all property rights in public ownership. Consequently, the property market ceased to operate, and private property ownership disappeared. Land resources were administratively allocated to government agencies and state enterprises. Land was almost worthless, and acquisition of land was nothing more than a bureaucratic arrangement (Walker and Li, 1994). This situation continued until 1978.

In that year, the Chinese government adopted an open-door policy to improve the economy and modernize the country. Favorable terms, such as tax holidays, free or low duties on imported equipment, and plants and free or low-rent business accommodations were offered to foreign investors. At the same time, the government realized the need to reform the land tenure system and, keeping in mind both legal and political considerations, adopted a land use rights (LUR) system based on the Hong Kong leasehold system (Chan, 1996). Readers interested in the evolution of the LUR system may refer to Walker and Li (1994).

The new land use rights system has brought about marked changes to the real estate environment in mainland China. However, it is not without fault. Large areas of arable land have been cleared without any substantive development plan, and government departments and officials participate in developments claiming unfair advantages. For example, arbitrary taxes and fees are imposed on development projects. This article intends to be an extension to Walker and Li (1994) and focuses on the associated problems of the LUR system. It concludes with recommendations for improvement.

Features of the LUR system

The LUR system is modeled on the Hong Kong leasehold system. The Hong Kong leasehold system features the following:

1. The government owns all land in the territory and is the sole source for granting land leases to developers and users. The land tenure in the territory is leasehold, although there had been one exception-a freehold title for the land occupied by the St. John Cathedral Church was granted to the Church of England in 1847 (Cruden, 1986).

2. The grantees cannot acquire the absolute ownership (freehold title) from the government.

3. The leases granted are for specific periods-75, 99, and 999 years in the past, and now for a term not extending beyond June 30, 2047. According to Annex III of the SinoBritish Joint Declaration on the Question of Hong Kong, those leases that expire or contain an option for lease renewal after June 30, 1997 are recognized. All leases that expire before June 30, 1997 may be extended, if the lessee so wishes, for a period expiring not later than June 30, 2047.

4. The grantees need to pay the government a lump-sum premium plus a nominal annual ground rent for the lease. This provides a substantial source of income to the government. …

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