China’s Real Estate Law & The Business Opportunities for the Foreign Investors

After the Chinese government opened up its economy and encouraging more and more foreign companies to invest in China, it is the foreign real estate companies that made the first move. Market reforms and the relaxation of rules governing inbound investment have contributed to the growth of foreign investment in Chinese real estate, especially from developed countries, continues to increase, the competition for high-end office and residential markets is expected to become more intense.

With China’s rapidly expanding economy there is an increased need for residential housing, commercial space and industrial parks that are structured to meet the unique requirements of the Chinese population. Real estate has been one of the few brightest spots in China’s investment landscape as the government clampdown is not as aggressive as it used to be even a few years ago.

Real Estate Law in China

Land in China may not be privately owned, but the usage rights in respect of land (i.e., land use rights) may be privately held for certain periods of time and are generally transferable for a fee. The two basic types of land use rights in China are

I.Granted land use rights

II.Allocated land use rights

The PRC Property Rights Law was first enacted on March 16, 2007, following legislative debates that had lasted for over a decade. Effective from October 1, 2007, this comprehensive legislation on property with nineteen chapters and 247 articles establishes a framework of property rights protection, including protection for movable property and real estate (immovable property). In addition to the Property Rights Law, China regulates real property through a series of other laws and regulations, including the PRC Law on Land Management, the Land Registration Measures, the Interim Regulations Concerning the Assignment and Transfer of the Right to Use State-Owned Land in Urban Areas (Assignment Regulations), and the PRC Law on the Administration of Urban Real Estate (Urban Real Estate Law). Governments in the first-tier cities have also introduced urban renewal policies, including:

>> City upgrades in Shanghai and Shenzhen.

>> Shanty town reconstruction in Beijing.

>> Old towns, factory buildings and village residence renovation in Guangzhou.

Foreign Investment in Real Estate in China

Individuals, including foreigners can hold long-term leases for land use. They can also own buildings, apartments, and other structures on land, as well as own personal property. Real estate sales in China take place in the form of transfer of right to use land. To obtain land-use rights, the land user must sign a land-grant contract with the local land authority and pay a land-grant fee up front. The grantee will enjoy a fixed land-grant term and must use the land for the purpose specified in the land-grant contract. Depending on the type and purposes of land use, the maximum term of a land grant ranges from 40 years for commercial usage, 50 years for industrial purpose, to 70 years for residential use. In fact, transfer of a land use right has accounted for most of the business activity in the primary real estate market in China.

Final Thoughts

In China, land use ownership, the real estate development process, and foreign investment in real estate are all subject to multiple layers of governmental laws, regulations, and controls at the local, provincial, and national levels. It is important to keep in mind that China’s legal system is still in the process of catching up with its economic growth and its integration into the international markets.

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