Land transfers now major source of local governments' fiscal revenue: report

09:03, December 30, 2010      

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The total income generated by land transfers is expected to exceed 2 trillion yuan ($301.95 billion) this year, and land sales have now become the largest source of income for local governments, leading to higher housing prices, according to a People's Daily report Monday.

The income generated by land transfers in Beijing and Shanghai has reached over 100 billion yuan ($15.1 billion), a significant increase compared to a year earlier and, as the land supply doubled compared with last year, the total value of the land transfer is expected to exceed 2 trillion yuan ($301.95 billion), according to the report.

Over the last 10 years, the value of the land transfers has increased rapidly and its contribution to the local governments' revenue also increased. Data shows that land transfers generated 1.5 trillion yuan ($220 billion) for local governments nationwide last year, accounting for 46 percent of their overall financial revenue, up from 35 percent in 2001. This figure has reached 80 percent of revenue in some cities.

Now, housing prices in first-tier cities are high, and the prices in second and third-tier cities are rising. In addition to factors such as excessive liquidity and stronger inflationary pressure, some say that another important reason that drives the housing prices higher is the "land finance."

According to Huang Xiaohu, vice president of China Land Science Society, "land finance" usually refers to the practice of some local governments who sustain the fiscal expenditure by selling land. He said that after the land is transferred, the local governments can also receive income from sources such as taxes. In some regions, the "land finance" has become the main source of fiscal revenue.

In addition, various fees regarding the process from acquisition of the land to construction - including land management, property, finance and transportation - are imposed by the departments, according to the report. And these fees, as well as loans on pledges of land, mean that local governments can increase their income, according to Ye Jianping, a professor at Renmin University of China.

The "land finance" has existed for many years and it means that governments are involved in a process of "acquiring land, selling land, imposing taxes, mortgage and then acquiring land again", and the local governments, developers and banks are the largest beneficiaries, said Wang Xiaoying, researcher with the Chinese Academy of Social Sciences (CASS).

Ye said that the process has led to high house prices, so that homes are in the hands of the wealthy. The "land finance" has also led to too much capital flow to the property sector and is unfavorable concerning the optimization of the economic structure.

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