A look at the methods of securing land for characteristic town projects

By Wang Jihong, Tang Hongwei, Zhong Lun Law Firm
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On 1 July 2016, the Ministry of Housing and Urban and Rural Development, the National Development and Reform Commission and the Ministry of Finance jointly issued the Notice on Launching the Work for Fostering Characteristic Towns, deciding to launch the work for fostering characteristic towns on a nationwide scale. At the present stage, such different types of characteristic towns as historical/cultural towns, characteristic industry towns, ecotourism towns, etc. have developed. However, regardless of the type of town, project land is the physical medium on which characteristic towns are developed, and the methods of securing project land is an issue that all characteristic towns face.

Wang Jihong Partner Zhong Lun Law Firm
Wang Jihong
Partner
Zhong Lun Law Firm

We once provided our services throughout the process for a characteristic town project in Yunnan. This project is both a characteristic industry town, being the place of origin of a famous characteristic Chinese traditional medicine, and an ecotourism town, as it is located in a scenic mountainous area. Within the planned scope of the project, there is a characteristic food street, music town, retirement neighborhood, ski resort, hospital, schools, theater, hot spring hotel, commercial real estate, etc. As such projects take various forms, the methods and means by which investors obtain project land also vary.

Allocation method. The primary condition for allocation is that the purpose of the land complies with the Allocated Land list. Accordingly, not all projects within a town require the investors to acquire the land for consideration, for example the land for public roads, public squares, green spaces, water supply facilities, non-profit schools, charitable hospitals, etc. within a town may be provided by allocation, thereby reducing the pressure on the investors to a certain extent. However, it should be noted that the restrictions on the purpose of allocated land are quite strict, with the state showing a trend toward narrowing the scope of allocated land, and it is almost impossible to secure land by allocation for for-profit schools, hospitals, theaters, etc.

Grant method. Granting of land is one of the major methods by which land use rights are secured in characteristic towns, with the land for such projects as commercially developed housing, hotels, etc. within the town required to be secured in this way. However, pursuant to the laws of China, the use rights to state-owned construction land must, in principle, be openly granted by tender, auction or listing on a land exchange (Tender/Auction/Listing), and the grantor may not agree upon the land grant price or the listing reserve price with the prospective grantee, making it impossible for the investor to control the price for the land by way of an agreement. In practice, investors are often indirectly locked in by such methods as the targeted setting of a land supply plan, bidding conditions, etc., to carry out a so-called “targeted Tender/Auction/Listing”, and there also instances where the land grant price is indirectly locked in through the local government retaining a portion of the land grant premium and directly refunding it to the investor. These practices, however, are also all prohibited by relevant regulations and policies.

Tang Hongwei Assoicate Zhong Lun Law Firm
Tang Hongwei
Assoicate
Zhong Lun Law Firm

Lease method. Pursuant to the Several Opinions on Regulating the Lease of State-Owned Land, the leasing of state-owned land is one of the means of using state-owned land for consideration. The leasing of state-owned land may be effected by way of tender, auction or agreement between the parties, but where there are conditions, it must be effected by tender or auction. Furthermore, certain regions require that, for commercial, tourism, entertainment or other such land with a for-profit purpose or where there are at least two prospective lessees, the Tender/Auction/Listing method be used. Additionally, leases of state-owned land are subject to lease terms, generally not exceeding five years, and, at a maximum, not exceeding the 20 years specified in the Contract Law. For ski resorts, amusement venues, etc. within a town, consideration may be given to securing land use rights by way of a lease.

Availability of collective land. Characteristic towns often involve rural collective construction land. Pursuant to the Law on the Administration of Land, the use rights to land collectively owned by farmers may not be transferred, assigned or leased for non-agricultural construction. However, there is a gradual trend towards relaxing the policy. In December 2014, the central government deliberated on and adopted a pilot project opinion, deciding to provisionally revise the provision prohibiting the transfer of the use rights to collective construction land in 33 selected district (county) pilot regions around the country, permit the transfer of, lease of and taking of an equity stake in the use rights to existing rural collective for-profit construction land, subject to compliance with zoning, use restrictions and lawful securing thereof, and implement equivalent availability and identical rights/identical price as for use rights to state-owned construction land. With collective land becoming available, use of collective land will also become a means of securing land that investors can consider.

Implementation of “PPP+Land”. For characteristic town projects implemented using the PPP model, the steps for determining the project investing entity and land user may be consolidated through a competitive method as specified in the Working Guidelines of the Ministry of Land and Resources for the Implementation of the Industrial Land Policy. That is to say, when a private investor is being publicly selected for a PPP project in a characteristic town, the relevant industrial land is listed and granted simultaneously, such that, by winning the bid for the PPP project, the private investor simultaneously secures the use rights to the relevant industrial land.

In characteristic town projects, the method of securing project land needs to be determined based on the specific forms of the projects, the nature of the land, etc. Generally speaking, the lots that can generate the greatest benefits are those that are the most sought after and have the highest price. Before making an investment, the investor needs to comprehensively consider the land costs and benefits for the various business forms within the town and the risks in obtaining the land. For those characteristic town projects that have relatively weak profitability prospects, the investor can negotiate with the government to develop other profitable resources outside the town as compensation. In short, investors need to prudently consider and assess relevant risks and themselves balance the overall benefits.

Wang Jihong is a partner and Tang Hongwei is an associate at Zhong Lun Law Firm

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