Real Estate China – New Rules for Public Bidding on Residential Land in Shanghai

In brief: The Shanghai Housing and Land Resources Bureau has issued a new circular on bidding for residential land that appears designed to take some of the heat out of public bidding for land. Partner Nigel Papi (view CV) and Senior Associates Maggie Ma and Ross Keene comment on the new circular.

Circular 633
The Circular on Changes to the Public Bidding Rules for Listed Residential Land (the Circular) was signed by the Shanghai Housing and Land Resources Bureau on 22 October 2007 and has been forwarded to leading developers in Shanghai. Under the Circular, bidding for land for which over half the land area is to be used for residential purposes will be by way of sealed bids rather than bidding at an open auction. If some, but less than half, of the land is used for residential purposes, then the new rules can be ‘consulted’, but do not necessarily need to be followed.

Bidders will be required to complete their bidding forms on-site, seal their bids and then submit them for notarisation on-site. Once all the bids have been submitted, they will then be unsealed on the spot.

The land will be sold to the highest bidder at the price offered in its bid, unless the highest bid is lower than the reserve price, in which case there will be no sale. If the two highest bids are the same, those bidders will be able to submit second bids in writing, and the land will be sold at the price offered by the higher bidder in its second submission.

Shanghai has experienced significant increases in land prices recently, which has had a flow-on effect on the affordability of residential housing. The Circular is intended to slow down or reverse this trend, on the assumption that bids submitted via a one-off written bid will not be as high as those that would eventuate in a highly competitive open auction. We expect the authorities will closely monitor the impact of the new rules on land prices, and further modifications may eventuate depending on how well the rules work in practice.

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