According to China's system of land management, an investor is not allowed to obtain land directly from the original land users. Theoretically, the government should first revoke the land-use right before transferring it to the developer. But in practice, local governments often transfer a land-use right to a developer without first revoking it from the original holders – or more precisely private home owners in this case – and issue a permit of demolition to the developer without ever showing up. Developers are profit driven, so they do their best to slash down the unit compensation to owners and transfer the burden of the cost to the buyers of the new property that will replace it, consequently causing housing prices to rise. Where owners of houses designated for demolition feel inadequately compensated they refuse to be relocated. The tug of war between homeowners and real estate developers has resulted in a vicious cycle of spiraling land and housing prices in which the house owners are always the losers.
Article 42 of the Property Law of the People's Republic of China promulgated in March 2007 specifies, "For the purpose of serving the public interest, collectively owned land and corporate and individual possessions of houses and other real property may be expropriated in line with the jurisdiction and procedures as provided by law." This law transcends the old statute on urban housing demolition. However, since the "jurisdiction and procedures" are not then clarified, there is no law to regulate urban housing demolition de facto."
In August 2007, the Standing Committee of the National People's Congress adopted an amendment to the Law of the People's Republic of China on Urban Real Estate Administration as follows: "In the public interest, the state can expropriate any corporate or individual edifice built on state-owned land, and shall give relocation compensation according to law and safeguard the legitimate rights and interests of the dispossessed; in the expropriation of private housing, the state shall guarantee the housing conditions of the dispossessed. The specific measures shall be formulated by the State Council." Authorized by this amendment, the Legislative Affairs Office of the State Council started to draft the Regulations on the Expropriation, Demolition and Relocation Compensation of Houses Built on the State-owned Land, to replace the Regulations on the Administration of Urban Housing Demolition.
Legal Landmines
At present, the Legislative Affairs Office of the State Council has finished the draft and is soliciting opinions from local governments. "We will present it as soon as possible for public review," said Cao Kangtai, director of the Legislative Affairs Office, in a recent interview.
According to Cao Kangtai, there are three difficult points to be navigated in the making of the statute. First, the definition of public interests. He said in the new statute the scope of public interests will be listed, and the scope tends to be narrow. But this has aroused objections from local governments, who hope to define the scope on a wider basis. Second is the question of who is in charge of initiating the expropriation procedure. Third is the nature and extent of relocation compensation. Cao Kangtai said that the Legislative Affairs Office tends to compensate by the market price, elaborating, "You demolish people's houses, so the compensation should enable the owners to afford to buy new houses."
Wang Xixin, director of the Center for Public Participation Studies and Supports (CPPSS) and deputy director of the Center for Studies of Constitutional and Administrative Law of Peking University, emphasizes that the reviewing process is a matter of great importance to vital interests. If rushed into action it will not solve actual problems. He admits coming across great obstacles to getting compliance to the new stipulations. Pressure is exerted by local governments who commonly practice direct commissioning of municipal projects to real estate developers, since the change would significantly reduce the revenues they make from the transfer of land-use rights.
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