July 21, 2019

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Chinese Real Estate Transactions

The Chinese Constitution states that all urban land is state-owned. While rural land is owned by agricultural collectives, these collectives are closely managed by the government.

China national individuals and legal entities, as well as foreign national individuals and legal entities, can obtain leases to use land from the state. Conversely, buildings, structures, and facilities such as apartments can be owned by individuals and legal entities.

The main provisions governing real estate transactions in China are set out in the Property Rights Law, enacted in 2007.

The right to use land

Since in effect all land is state-owned, in order to gain control over land, one must obtain a transfer of the right to use land from the government. Such land use rights can be obtained by signing a contract with the local land authority. The land-grant contract will state not only the fee to be paid but also the proposed use of the land from which the grantee must not deviate.

In general, land to be used for residential purposes can be leased for a maximum term of 70 years. The limits for industrial use and commercial use are 50 and 40 years respectively. It should be noted that such leases are treated as contracts under Chinese law and not as land rights.

Agriculture collectives, by contrast, are not permitted to sell or lease land.

Transfer of ownership

Property ownership must be registered with the relevant registry. Under Chinese law, existing buildings are distinct from the land on which they are situated and buildings and the land on which they stand may be owned by different persons or legal entities and registered in separate registries.

Contracts for the transfer of property are deemed immediately effective once executed and before registration takes place. However, registration of property is crucial as the Property Rights Law provides that any transfer of property can be made effective only after entry into the land register.

Registration is also taken to be final and conclusive proof of ownership regardless of the content of any contract.

Disputes over bona fide purchases

In cases where an original owner of property is defrauded and ownership is passed to a bona fide purchaser, for instance by a forged contract, the law upholds the bona fide purchaser’s right to acquire the property at market value or such other reasonable price if the purchaser has honestly registered his ownership.

Protection of property interests

On paper, the law protects the “legitimate properties of individuals” from the actions of any individual or institution. The law purports to protect the rights to possess, use, and benefit from immovable property.

Claims can be made under the Property Rights Law in connection with the recognition of property rights, the return of property, removal or amelioration of danger or damage, restoration of property to its original state, and compensation due as a result of damage sustained by property.

Condominiums

Despite a burgeoning condominium market, the laws governing condominiums are few and far between.  The main condominium rules are contained in the Property Rights Law, which gives owners the rights to their specific units and parking spaces, non-exclusive rights to common areas and the right to engage in the management of the condominium.