During the housing bubble, Chinese media often reported on a local "land king," a developer who paid an extraordinarily high price at a government land auction. Now we know why they were willing to pay sometimes seemingly absurd prices: the government was kicking back up to 80% of the total amount paid. Governments had already chosen the developer and fixed the price for the land, including signed contracts, with the auction a mere show for the public. If the auction price went above the contract price, the government would return the developer's money, plus interest.
Besides fixing a land sale before the auction, governments also reimbursed developers for development costs such as roads, sewers, and improvements. Land prices rose very quickly because once developer costs were included in the land sale price, developers starting running up costs, for example turning a ￥100 million project into ￥500 million. Then if the land auction went for ￥1 billion, the developer would only have to pay ￥500 million for the land, with the other half reimbursed. This helps explain why land sales totaled ￥130 billion in 2001, but last year, land sales totaled more than ￥4 trillion, an increase of 30 times. The total sales over this decade plus comes to nearly ￥20 trillion.
Governments also forced their state-owned enterprises to join in land auctions once the market cooled, in a process that was in essence moving money from one pocket into the other. As was previously reported, this also worked in reverse as governments sometimes used proceeds from land sales to prop up their SOEs. Other times they told developers to stay away and transferred land to SOEs at cost.
Aside from the corruption involved, the worst aspect of this is the distorted market signals sent by high land prices. This adds a new layer the bear case because prices were not only elevated to unsustainable levels by the credit bubble, but went beyond into truly artificial territory. There's also the land finance aspect: governments have trillions of yuan in loans from banks backed by land sale revenue, but did governments report the gross or net revenue to banks? This issue alone could severely impair bank's ability to lend if governments have been overstating their land sale revenue to banks.
What most worrisome is that the audit prior to the current strict audit found 95% of the provinces surveyed had evidence of corruption in land sales. A single case is evidence, so we can't guess the scale of the problem, but there is no good news coming. The "good" news will be the problem is indeed isolated and costs limited. The bad news will be the real estate crisis you thought existed is really far worse than imagined.
Core Tip: Behind 20 trillion land transfer audit storm, hidden local governments and developers ineffable secrets. Enterprise has been able to withstand the high land to the king, because after nearly 50 percent of the total available land returned. This not only leads to frequent the king, disguised push high prices , but also the breeding ground for huge rent-seeking space.
Behind 20 trillion land transfer audit storm, hidden local governments and developers ineffable secrets.
"Some enterprises are able to withstand the high land to the king, because after nearly 50 percent of the total available land be returned if plots involving shantytowns, premium refund amount up to more than 80 percent." Shenzhen Golden Eagle Real Estate Marketing Director Lin Xiaohua said that some companies may encounter some time to get to the restrictive barriers, including supporting hotels, large commercial, etc., the government will give financial subsidies or refund part of the land transfer.
Hunan Provincial Association of Realtors chief economist Wang Gao told the "China Times" reporter, some directed to sell the land, in essence, already locked developers, "the auction link, you can always shoot down until photographed so far, anyway, than the two sides agreed prices and spend more money, and finally the government will be returned to the developer. "
This land transfer and then return the model, not only lead to frequent the king, disguised push up prices, but also leads to a lot of places in the land auction and a mere formality, and the breeding of a huge rent-seeking space.
Private return part transfer
"I personally signed this contract, that is, before the auction, the agreement stipulates that if the auction price exceeds the contract, the Government shall own with interest returned to the developer." Housing prices listed Shenzhen Investment and Development of a department official told reporters By way of return of land transfer, reducing the cost of developers get the government to earn more investment and employment, as well as banks carrying water.
MLR data show that the national land transfer price of 129.6 billion yuan from 2001, to more than four trillion yuan last year for the first time, 13 years, an increase over 30 times, the cumulative total of nearly 20 trillion yuan.
"This land transfer 20 trillion yuan artificially high ingredient actually exists." Person of Shenzhen Investment and Development Department Housing prices listed above said.
He further said that after the transfer if it is directed, the starting price of land at public sale, often determined by the government to seek the views of developers, and specific matters relating to the transfer price of the return of a supplemental agreement entered into by the parties. Developers of the land supply, the investment cost of electricity, sewage, gas pipeline network and other municipal utilities and roads, the government returned to the developer.
"Auction of land designated by the Government shall require all into account, down the account, and then to the other on behalf of the government returned to us." The Investment and Development Department, told reporters that the mainstream approach is by doing high-level developers to pre-development costs , then the land shall be deducted, in this way for developers and government are safe.
"Early land preparation and demolition, building schools or roads to help the government, if in fact, spent 100 million yuan, you can do bigger and engineering costs as high as 500 million yuan, after the auction by the government on behalf of these infrastructure 500 million yuan returned to the developer if the land sold 1 billion yuan, 500 million yuan developers only pay the difference. "The investment and development department sources said, the return of land and there is no strict procedure, costs just get made The Government agreed to, if the program must publicity, by the Government to find a company to do the high assessment to assess the price.
Director of a listed Strategic Housing prices Yangtze River Delta region, told reporters, in some newly developed local district government in order to attract large-scale investment in housing prices, but also set up many projects, such as Green Building Award, Innovation Award and Environmental Design Award, etc. , in the form of bonuses disguised subsidies for housing prices.
"Some single award recognizes not by much, it will issue multiple awards, sometimes spiritual civilization will award all placed in the names, but there are also some projects, an award is basically to cover the cost of Kin." Housing prices above long Strategic Triangle Regional Director explained that his company in a three-city project cast, won the local government issued a Green Building Pilot multiple awards, sold per one square meter can get 1800-3000 yuan in subsidies.
Yangtze River Delta city in a financial department told reporters, because of a similar subsidy agreement requires governments and developers, but also cooperate with each other in the actual financial docking, such as housing prices need to land a one-time paid money, and the return of subsidies can be arrived land shall, therefore housing prices due to the large state-owned auditing stronger, more favored by the local government.
"If the local government simply give the land concessions, it is difficult to raise land prices, because developers in return for cost accounting and there is not much difference between the estimates, so the local housing prices need to be able to behold with an auction and behind The series of work. "Housing prices above director.
Easy formality auction
This land transfer return mode, resulting in a lot of land auction procedures mere formality.
"One time, we want to shoot long samet chihu zone, but the local government greet us and told us not to shoot, and finally by the Department of Finance, a subsidiary of state-owned enterprises competing in a zero premium." Changsha, a developer told reporters.
"When the market cooled, the government will come forward to take to prop up the state-owned enterprises, shoot high premium, in fact, down the right hand or left hand, superficial, not much really get our hands on government land revenue, earned just flowing financial bank card only . "Housing prices above Shenzhen Investment and Development Ministry sources, sometimes by the local government will take high ground, and afterwards returned to the developer's mode pulled region premium.
According to Wang high understood that this situation often occurs in a substantial land around the city, the government hopes the big developers to promote regional development, tend to land none other investment [ Introduction News ], such as a large public housing prices in Guangzhou last year in Changsha Liuyang shot of a piece of land is the "virtual shoot."
Under the current practice, the land transfer fee, paid in addition to superior financial part, entirely responsible for the use of the remaining expenditure by local government, land department has no right to intervene. Since the land transfer revenue management in a blank state law, there is no clear legal provisions, there is no corresponding constraint, always drifted away from public scrutiny. In addition to accepting some modest efforts to audit, most of the "closed operation."
Wang Gao said, the land is not included in the budget revenues, the report submitted to the National People's Congress place during the annual "two sessions", and does not include land transfer. Lack of supervision, resulting in transfer of benefits uncommon phenomenon.
"Auction will be two cases, one is taken away by other developers, the other is their win. Situation arises if the premium is too high, such as conventions 1 billion yuan, sold 2 billion yuan, maybe we do not, let other housing prices shot away, the extra one billion yuan, we divided with the government, but this happens rarely. "These investments Development Ministry sources said.
Wang told reporters that high, due to the developers before the auction only paid the deposit, the extra land premium payment is not required, simply change the contract privately again. "Anyway, how much financial fetched, and no one checked, simply press the contract money to finance."
"This approach has more than a decade, has been very common, land transfer link is a high incidence of corruption." Housing prices listed above Shenzhen Investment and Development department official said, "have gifts for officials in charge of the specific size of the project and see the amount of profit If the developers earn a million to send out for a twenty million does not matter. "