Shanghai Introduces Shorter Industrial Land Use Terms and Operational Targets

April 28, 2014 Posted by China Briefing Reading Time: 2 minutes

SHANGHAI – Last week the Shanghai Municipal Planning and Land Resources Allocation Bureau announced coming changes to the city’s industrial land use system, including a significant reduction to maximum land use terms. According to officials, the reforms are intended to increase land use efficiency through setting more stringent targets for construction and on-site operations.

Under the new system, land use rights will be granted for a period of 20 years, except in the case of certain “important national and municipal industrial projects,” which may be eligible for 50 year terms, as is current practice.

While this will not affect land use terms signed prior to last week’s announcement, the new rules will apply to all future applications for renewing land use terms.

Accompanying measures also require that enterprises set a range of investment, sales, operational, environmental and tax targets, and undergo periodic evaluations for their compliance. Failure to meet these targets may result in the reclamation of land, in which case the enterprise is to be compensated for any remaining on-site facilities. Reclamation may also be initiated at the end of a usage period based on “significant change to the industrial product or industry structure” – effectively providing the municipal government with grounds to reject unfavorable renewal applications.

In the short-term, the shortening of use terms to 20 years is expected to drive down the valuation of land parcels, especially in conjunction with new rules stipulating that buildings and improvements located on industrial land will be valued based on their residual value, rather than market value, as previous.

Overall, these changes are one more regulatory push to move Shanghai’s economy away from manufacturing and toward a service-based model.

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