A Private Land Exchange Venture

In recent years there have been a number of local government experiments in setting up rural land exchanges. The exchanges allow farmers to transfer the rights to operate their land (but not sell it). County governments have three-level systems that consist of a physical land exchange—a room in an office building with a big LED screen on the wall, a web site, database, and maybe a touch screen. Townships have land exchange offices and villages have an official in charge of collecting information from farmers who want to transfer their land.

Chengdu Scientific Land Ltd. Co. is an interesting private venture in the communist party-dominated rural land brokerage business. The company was started last year by four recent graduates of Southwest Minorities University. The company set up a web site, Tuliu.com, which lists parcels of land and people and companies seeking land all over the country. The site lists dozens of parcels, showing the location, type of land, length of contract, desired rent, a photo and map showing the location. It includes small parcels of 1 mu or less renting for 200-400 yuan per year and large parcels renting for thousands. The site includes statistics showing average rents and number of listings by province.

The site serves as a platform to match farmers or collective organizations that are offering land for rent with people looking for land. The company encourages brokers to match up parties for a fee. Average rents for Beijing and Shanghai are 1,400-1,500 yuan (over $200) per mu per year, but the average is 300-400 yuan (about $50) in other provinces. The site claims to have 3000 registered users and transferred 4.5 million mu in 2009. This blows the communist party exchanges out of the water; most of them have turned over a few hundred mu.

The director of the Chengdu Rural Property Exchange, a local competitor, says the creativity behind the tuliu.com site is good, but he questions whether the company can verify the information on the site and prevent frauds. The tuliu.com site claims that it tries to verify the identities of people listing on the site and requires those offering land to present required certificates, but it posts a “buyer beware” warning. The company plans to provide verification and financial services eventually.

How long before the government shuts these guys down? Their web site is far better than any of the government exchanges and it functions with much lower up-front costs—no physical office building/trading hall, just a few guys with computers offering services nationwide.

Another threat is competition from other entrepreneurs. There are several other sites offering similar services. If tuliu.com succeeds copycats will spring up like mushrooms. Tuliu.com initially is offering its service free. Will it be able to start charging if there are competitors?