27 June 2012
On 23 May 2012, the PRC Ministry of Land and Resources ("MLR") and the PRC National Development and Reform Commission ("NDRC") jointly issued the 2012 version ("2012 Version") of the Catalogue of Restricted Land Use Projects and the Catalogue of Prohibited Land Use Projects (collectively "Restricted and Prohibited Land Use Catalogues"). The 2012 Version came into effect on 23 May 2012 and the previous version has now been superseded.
Among others, the 2012 Version requires that the plot ratio of all residential property development shall not be lower than 1.0 ("Minimum Plot Ratio Requirement"). This is reported to be aimed at more effectively clamping down on development of low-density residential properties (e.g. villas or quasi-villas). However, there may still be practical problems in implementing the Minimum Plot Ratio Requirement and the aim of prohibiting low-density residential properties through this may not be fully achieved.
The Restricted and Prohibited Land Use Catalogues were originally issued in 1999 with the purpose of enhancing the economical and intensive use of land and preventing waste of land resources.
In 2006, the MLR and NDRC issued the 2006 version of the Restricted and Prohibited Land Use Catalogues which was formulated in accordance with the Catalogue for Guiding Industrial Restructuring (2005) and the then prevailing land supply policies, and a supplement to the 2006 version was further issued in 2009 (collectively "2006 Version").
In order to implement the principles set out in the 2008 Notice of the State Council on Promoting the Economical and Intensive Use of Land, the MLR and NDRC updated the Restricted and Prohibited Land Use Catalogues in accordance with the Catalogue for Guiding Industrial Restructuring (2011) and the national industrial policies and land supply policies, and issued the 2012 Version accordingly.
Application and Legal Effect
The 2012 Version applies to any construction project regardless of whether it is new, is an expansion or a reconstruction.
The respective local branches of the MLR and the NDRC are required not to go through the formalities in relation to land use or investment for prohibited construction projects. For restricted construction projects, they should only be permitted to go through the formalities if the relevant project satisfies the conditions imposed in the Restricted and Prohibited Land Use Catalogues.
Main Changes related to Real Estate Development Projects
The 2012 Version retains the 2006 Version's prohibition on real estate development projects for villas and on use of agricultural land (??) for developing high unit area residential projects (namely residential properties where the floor area of a single flat is more than 144 square meters).
The 2006 Version prohibited agricultural land (??) from being used for developing low-density residences (being a project with a plot ratio of lower than 1.0), but made no mention of development land (????). The 2012 Version however sets out the Minimum Plot Ratio Requirement for all residential projects. Therefore development of low-density residences is now prohibited even if no agricultural land (??) is used for the development.
Plot Ratio and Its Application to Villas and Low-density Residences
Although there is no legal definition of the term "villa" under PRC laws, in the Reply Letter regarding Explanations for the Criteria for Determining Low-Density and High Unit Area Residence and Villa Residence ("Reply Letter") issued by the general office of the Ministry of Development (now known as the Ministry of Housing and Urban-Rural Development) ("MHURD") to the general office of the MLR in 2006, the MHURD gave some guidelines to the MLR on how to determine a villa and a low-density residence as follows:
- a villa generally refers to a detached residential building which building density is low and plot ratio is lower than 1.0; and
- residential properties with a plot ratio of lower than 1.0 may be regarded as low-density residencies.
As the Reply Letter in nature is an internal letter between two governmental authorities and therefore could not have the same formal legal effect as laws and regulations, it is only an internal policy and guideline when governmental authorities deal with these issues in relation to development of villas and quasi-villas. A formal legal definition and detailed criteria for implementation need to be issued in order to avoid uncertainties in this respect.
Although the prohibition on villa development has been imposed since 2003, there are a great deal of uncertainties in enforcing this prohibition in practice due to the lack of detailed criteria for implementation. It is reported that developers have been trying to get around this prohibition by developing "quasi-villas" (namely low-density residences that meet the technical requirement for non-detached buildings in the design plans, such as semi-detached villas, duplexes and townhouses) and at the same time developing multi-storey buildings with higher plot ratio within the same parcel of the land so as to achieve an overall plot ratio for the whole project of higher than 1.0.
After the Minimum Plot Ratio Requirement takes effect, it would be very difficult, if not impossible, for developers to develop a project consisting only of pure "quasi-villas" or low-density residences as the plot ratio of this type of project is likely to be lower than 1.0. However, the approach of developing a residential project containing certain "quasi-villas" or low-density residences together with a few more multi-storey buildings within the same land parcel would probably still survive. It is yet to be seen how and to what extent the Minimum Plot Ratio Requirement will be implemented to curb the development of "quasi-villas" or low-density residences in future.
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