For many years China has been implementing separate policies for
urban and rural land, under which they are governed by different legal
systems and governmental authorities and are traded in different markets
and have different rights. Use of farm land for non-agricultural
purposes is monopolised by the government. Rural land to be used for
urban construction needs to be expropriated from farmers first and then
sold to land users by the government.
The government benefits from this process: it pockets the
differentials between land premiums paid by land users on the one side
and compensation paid to farmers plus infrastructure development costs
incurred by the government on the other. Farmers do not have a say in
the expropriation process and their property rights are not fully
The dual-track land policy in recent years has contributed greatly to
the high-speed industrialisation and urbanisation of China. But the
problem is obvious: there is a lack of sufficient protection for
farmers' property rights, tensions and conflicts arising from land
rights continue to aggravate, and a monopoly on land supply causes
systematic corruption among governmental officials.
At the beginning of this year, the PRC Ministry of Land and Resources (MLR)
allowed Beijing and Shanghai to start a pilot programme on building and
leasing residential properties on rural land. This move is a
significant breakthrough in the context of the existing land policy and
may open the door for farmers to participate in urbanisation.
Under the pilot programme, counties or villages may use rural
construction land (non-agricultural land) to build and lease residential
properties, to which counties or villages will own the title.
The first pilot programme in Beijing was launched at Tangjialing
Village, Haidian, where 100,000 square metres of residential properties
will be built and leased. Upon the completion of the construction work,
Haidian Low-Income Housing Centre (a government agency) will rent the
entire project and operate it as low-income housing. The first pilot
programme in Shanghai will start in Chongming, Qingpu, Baoshan and
Fengxian, building and leasing residential properties with total gross
floor area reaching 1 million square metres.
Counties or villages may choose different methods to build and lease
residential properties on rural land. They may independently develop
residential properties on their land, or contribute the land as equity
to a joint venture, which will develop residential properties, or lease
its land to developers or investors to build and lease.
The development and operation of residential properties on rural land
will be covered by the construction plan for low-income housing and
will be entitled to certain tax incentives from the government.
The tension and division in the land market has acted as a catalyst
for the MLR to deviate from the dual-track land system and release the
pilot policy. The government is under great pressure from the aspects of
land and capital in connection with building low-income housing.
Building and leasing residential properties on rural land would help to
lower land costs and alleviate imbalances between supply and demand for
residential housing in urban areas. In addition, by allowing farmers to
build and lease residential properties and benefit from rental income,
the pilot policy should help to avoid tensions and conflicts arising
from expropriation of rural land by government.
The pilot policy aims to create opportunities for investors and
developers. The pilot policy allows farmers to adopt various methods to
build and lease residential properties. Farmers may build and lease by
themselves, or rent their land to developers/investors for the purposes
of building and leasing, or alternatively set up a joint venture with
investors or developers by contributing their land to the joint venture.
There are several advantages for renting rural land or setting up a
joint venture with farmers. First, because there are no land premiums,
taxes and fees to be collected by government, land cost is low compared
with renting and acquiring stated-owned land. Secondly, the majority of
rural land included in the pilot programme is located in proximity to
urban area and there are relatively mature infrastructure facilities. As
a result, the infrastructure costs are expected to be lower than other
rural areas. Thirdly, the government will grant certain tax incentives
for building and leasing residential properties on rural land. Finally,
there is a great need for low-income housing in the market.
In May 2012, the MLR will finalise a list of cities which will be
allowed to implement the pilot policy. It is expected that the policy
will spread beyond Beijing and Shanghai in the near future.