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Chinese Experts Doubt New Land Fees

A plan to slow investment in fixed assets in China by doubling the land-use fee for new construction projects next year may have little impact on the country's booming property market, real estate watchers said a day after the increase was announced.


The fee-increase is part of a series of measures aimed at protecting arable land, discouraging land abuse and curbing investment in the super hot fixed-assets market, according to a statement issued  by the Ministry of Land and Natural Resources, the People's Bank of China and the Ministry of Finance on Monday.


Local governments will also lose their share of the revenue generated by the fees under a new formula that will divert the funds to the provincial and central governments.


However, analysts said local governments would simply find new ways to benefit from land sales and that the increased fees were still just a drop in the bucket compared with soaring land prices.


The current land-use fee ranges from 5 yuan to 70 yuan per square meter. It depends on the location. For example in a desirable location like Shanghai's Changning District the land use fee will grow to 140 yuan per square meter from 70 yuan per square meter (US$17.5 to US$8.75).


Under the new rules land-use fees will also be levied on illegally expropriated land in a bid to prevent local governments from under-reporting land-development deals. Experts say some local officials pocket the proceeds of illegal land sales.


Under the new fee-collection formula the provincial-level finance departments will take 70 percent of the revenue from land-use fees. The central government will take the rest. The new formula will take away the main incentive for local governments to expropriate arable land, said Yan Jinming, a professor at Renmin University.


"The new measures mean local governments won't keep the land-use fee which is a part of the net income of land sales," he said. "The doubling of the fee means they have to hand in more." However, he added that local governments could offset the higher fees by simply raising sales prices effectively passing on the higher costs to developers.


Meanwhile, an analyst said the change would have little impact on the vibrant activity in high-end real estate markets like Beijing and Shanghai. Zhang Kunyu, a Beijing-based analyst at Centaline China, a Hong Kong property company, said doubling Beijing's land-use fee to 120 yuan (US$15) per square meter would have little impact on the already sky-high land prices in the capital. 




"Even if the fee is passed on the amount is nothing compared with the high housing prices in Beijing," she said. Statistics show that the average housing price per square meter in Beijing was nearly 10,000 yuan in October.


Zhang also said the increased fees may actually end up exerting more influence on secondary markets where land prices are comparatively low. "They (the local governments) will think twice (about developing land) if they have to hand in more while earning a smaller share," she said.


(China Daily November 22, 2006)

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