Opening the System: Granting Land Use Rights by Public Notices

Announcement by Public Notice

In addition to land grant by auction or invitation of tenders, the 2002 Regulations for the first time introduce a new approach whereby land use rights may be granted by publication of public notices (挂牌).

The 2002 Regulations define "grant of State-owned land use rights by publication of public notices" as a process comprising the following:

(i) the grantor publishes a public notice at a land exchange centre as well as in local newspapers;

(ii) the notice lists the terms and conditions for granting the land use rights;

(iii) the terms and conditions include the details of the lot, the original base price and the subsequent incremental offers, and the amount of the performance bond;

(iv) the notice also states the period during which the grantor will accept and continue to accept offers submitted by qualified potential buyers; and

(v) the grantor undertakes to update the published prices and to make a decision on who will be the grantee on the basis of the price published at the expiration of the stipulated period.

The 2002 Regulations also provide that notices must remain public for at least 10 working days.

Notwithstanding the procedure outlined above, the 2002 Regulations do not actually specify the details for granting land use rights by way of public notice. The Beijing Municipality Procedures for Granting, Transferring and Leasing Land Use Rights (Trial Implementation) (北京市国有土地使用权出让、转让、租赁程式(试行), the Beijing Procedures) announced by the Beijing State-owned Land Resources and Housing Administrative Bureau (BJLRHAB) on September 28 2002 may offer some guidance.

The Beijing Procedures assume that the land comes from two sources: from existing land users or from land acquisition. If an existing land user wants to dispose of its land use right, it may apply to the local land bureau by filing an application.

The following documents should be submitted in support of the application:

(i) the building ownership certificate;

(ii) the land use certificate or a document relating to land title;

(iii) a certificate issued by the existing land user, verifying that the land is free from any mortgage or other encumbrances;

(iv) the land user's business licence; and

(v) if planning permission has been granted, the Opinion on Planning (规划意见书), and three copies of the appraisal report or other planning documents.

Upon acceptance of the application, the land grant department of the local land bureau shall, according to the annual land grant plan, proceed with a preliminary review of the land. If the land falls within the annual land grant plan, then the case will be transferred to the Beijing Land Clearing and Reservation Centre (北京市土地整理储备中心, the Centre) for processing. Alternatively, if various centres acquire the subject land, then the relevant information about the land will be passed directly to the land grant department for its preliminary review. If the land is part of the Centre's own land reserves and has already been included in the annual land grant plan, the Centre shall proceed with the preliminary work itself.

The preliminary work includes seeking an opinion from the municipal planning committee about the planning aspects of the land and assessing the land value. The existing land user will appoint a real estate appraisal company to assess the value of the land based on the terms and conditions set out by the municipal planning committee in its opinion. If the land forms part of the land bank, the Centre will hire a real property appraisal company to assess the price and submit the valuation to the land price review committee's office (地价评审委员会办公室) for preliminary review. Thereafter, the Centre will negotiate with the existing land user and draft an agreement for the distribution of land grant proceeds and any removal and resettlement undertakings(土地收益分配及搬迁协议). If the existing land user has a minimum transfer price, this should be specified. The next step is to establish a schedule for the land grant using the public notice process, which shall include the work plan, contents and work schedule. Prior to review and approval by the BJLRHAB, the Centre will assemble the necessary documents, including the public notice, an indication of prices submitted, a draft transaction and land grant contracts. The Centre will then submit the abovementioned documents to the BJLRHAB for its review and approval.

The price shall be reviewed and determined by the head of BJLRHAB; and the base price to be announced in the public notice shall be determined by the price review team (出让底价审定小组)taking into account the price and the draft agreement for the distribution of proceeds and any removal and resettlement arrangements.

Once the terms and conditions of the proposed land disposal have been approved, the Centre and the existing land user will sign an agreement for the distribution of land proceeds and any consequential removal and resettlement arrangements. Thereafter, the Centre will, as directed by the BJLRHAB, issue the public notice and display it at the Beijing Municipal Land Exchange Market.

Under the Beijing Procedures, interested parties are each required to submit an application to purchase the land use rights, along with their business licences and other corporate documents, and also a performance bond not less than the published price. The Centre will verify the applicants' qualifications. The 2002 Regulations provide that if only one offer is submitted during the bidding period, and this bid is higher than the base price, then the successful bidder shall be granted the land use rights subject to satisfying other requirements. If there are two or more bids, the bidder that offers the higher price shall win. If two bids are the same, then the first bidder shall be successful, unless the bid is below the base price. Where there are no bids or the bids are below the base price, no transaction will be concluded. In the event that two or more bidders remain at the close of the bidding period, they will be invited to submit further offers, of which the highest bid will be deemed the winner.

According to the Beijing Procedures, the successful bidder and the grantor will sign a legally binding letter of intent setting out the names of both parties, their respective addresses, the details of the subject land, the time and place to conclude the transaction, the price, and the time and place for signing the land grant contract. The performance bond paid by the successful purchaser shall be used to off set the purchase price payable under the contract; performance bonds paid by unsuccessful bidders will be returned to them without interest within five working days of the closing date of the notice period.

Public Notices vs. Auction or Invitation of Tenders

Reportedly, before the 2002 Regulations came into force, many property developers rushed to conclude land deals under bilateral agreements with land bureaux because they expected that purchase prices would increase once the Regulations took effect. While there is evidence of public notices being posted on the Centre's website and at land exchange centres in other Chinese cities, it has not been possible to gauge foreign developers' reactions to this procedure for granting land use rights. It has been reported that a majority of land transactions concluded at Shenzhen's land exchange centre took the form of a public notice process

Unlike auctions and invitation by tenders, the base price sought under the public notice process will be announced in advance, suggesting that the rate of successful transactions will be greatly increased. Auctions are generally thought to favour big companies who have the capacity to make on-the-spot purchase decisions. Smaller companies, on the other hand, may require some time to make a considered bid via the public notice process, where the base price is known in advance. However, it is not yet clear what factors influence the grantor's decision to adopt either the public notice process or the auction and tender procedures.