Beijing is scrapping price caps and changing other rules on land sales by local governments as part of an effort to revive a stagnant property market and turn the tide against a slumping economy.

The Ministry of Natural Resources has issued directives that allow municipalities to remove a 15 per cent cap, put in place in 2021, on the premium developers pay for land. This means plots will go to the highest bidder, rather than to a random winner from among all those bidding the maximum under the cap, thus boosting developers' willingness to take part.

In addition, a rule change regarding FAR (floor area ratio) will allow developers to build, outside urban areas, homes that have fewer square metres of floor space than land area – a change that encourages the development of villa-style homes.

The initiatives come amid a persistent decline in China's land market after cash-strapped private property developers reined in spending to fix their finances, which were squeezed between slowing sales and a sector-wide crackdown that constrained borrowing starting in 2020.

Cities are already responding. Chengdu, capital of southwest China's Sichuan province, announced in September that a batch of residential and commercial plots in the city centre would be sold under a market-driven approach, free from caps. Authorities in Jinan, in Shandong province, and Hefei, in Anhui, also removed price caps on new land sales in announcements that came out on October 9 and 12, respectively.