‘Subway plus property’ model highlights land use obstacles

The current China land system, especially the Property Law provisions on the grant method for land of a business nature, means the “subway plus property” mode of build-operate-transfer (BOT) concession projects may encounter many legal obstacles.

Land grant method: The core of the successful “subway plus property” model implemented by the Hong Kong MTR is the promotion of concession rail projects by way of BOT. While granting the MTR Corporation rail line concessions, the government additionally grants the project investor construction land along the subway lines to subsidise the business deficits of the subway projects. In this way, the passenger numbers of the subway increase the value of the property along the lines, and the property along the lines drives the subway’s passenger numbers, allowing the subway operations and property development to complement each other and both derive the best investment returns.

Land of a business nature

However, China’s system requires the granting of land of a business nature by the invitation of bids, auction or listing on a land exchange. The second paragraph of article 137 of the Property Law specifies that land of a business nature – such as for industry, commerce, tourism, amusement and commercially developed residential premises, as well as land the use of which two or more parties have indicated an interest in – shall be granted by way of an open competition, such as by an invitation of bids or auction. If a government fails to adopt one of the above mentioned methods to grant land of a business nature, it will be in violation of the Property Law, giving rise to the legal risk that the grant contract will be found to be invalid.

Wang Jihong is the managing partner at V&T Law Firm and Xie Yi is a partner at the firm