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China lease renewals ease homeowner fears

China’s land ministry will automatically renew residential leases set to expire next year, temporarily dispelling homeowners’ concerns about an erosion of their property rights.

In an announcement at the weekend, the land ministry said that 20-year residential property leases in the eastern city of Wenzhou would be automatically extended without charge, ending speculation that homeowners would face steep renewal fees equivalent to one-third of their property’s value.

Ever since Deng Xiaoping’s landmark economic reforms were introduced in the early 1980s, allowing people to buy land and property for the first time since the 1949 Communist revolution, titles in the world’s most populous country have been limited by fixed-term leases.

The first of these to expire, 20-year leases for residential land in Wenzhou, were a closely watched test of how the renewals would be handled. An earlier suggestion by local officials that renewal fees would be set at one-third of a property’s value sparked an outcry amongst the country’s homeowners, many of whom have become dollar millionaires thanks to the huge run-up in urban real estate prices over recent years.

The intervention by China’s housing minister, Wang Guanghua, highlights the political sensitivity of the issue, especially at a time when middle-class concerns over environmental pollution and an increasingly repressive political climate are exacerbating capital flight.

Separately, China’s parliament at the weekend passed a law introducing fixed-rate emission taxes for the first time. Despite Premier Li Keqiang’s declaration of a “war on pollution” almost three years ago, widespread coal usage across northern China has resulted in frequent “airpocalypses” that have forced local governments to restrict vehicle use, close schools, and implement other emergency measures.

A series of pollution “red alerts” were declared earlier this month after choking smog levels affected an estimated 500m people in China.

Environmental degradation and property rights protection are usually ranked as the highest concerns for China’s emerging middle class, whose members have moved billions of dollars offshore to buy residential properties and pay for their children to study overseas.

Most property leases run for 70 years, making Wenzhou’s looming expirations an exception that could have been left for the local government to handle. But China’s wealthy and middle-class urban homeowners are the ruling Communist party’s most important constituency. Nationwide, 90 per cent of households own their own homes.

Mr Wang’s announcement, however, does not signal a final resolution of the issue. The minister said the government was studying a new law that would regulate lease renewals nationwide.

The shorter lease tenures were introduced in Wenzhou in the 1990s to make properties more affordable.

Nationwide, soaring property prices have forced local governments to introduce a series of measures to reduce speculative buying. A recent central government conference on economic issues for the coming years said that “homes are for living in, not for speculating with”.

Via FT