Land ownership in the PRC is split into two categories: State-owned land and collectively-owned land. State-owned land is owned by the State and administered by the State Council. Collectively-owned land refers to land owned by collective economic organizations, which are generally committees of local villagers. Only State-owned land can be managed and developed by individuals and legal persons through the holding of land use rights.
Although ownership of land is not possible for private individuals or entities, it is possible to obtain the right to use land for a fixed period of time and such rights are usually known as land use rights. State-owned land and collectively-owned land can be managed and developed by individuals and legal persons through the holding of land use rights.
In addition to the granting of land use rights over State-owned land and collectively-owned land, the PRC government allocates for free land use rights for the construction of public interest projects.
Other categories of property right include leases and licences.
Last modified 22 Mar 2024
Foreign entities that do not have any subsidiaries or representative offices in the PRC, or foreign individuals who do not satisfy prescribed conditions are not allowed to purchase any real property in the PRC directly.
If foreign entities or individuals intend to invest in real estate in the PRC, they can either:
Foreign entities or individuals are also subject to stringent requirements with regard to obtaining offshore finance. Debt funding to purchase land use or building ownership rights may not come from overseas.
Last modified 22 Mar 2024
Certain pre-emption rights exist under the PRC law when real estate assets are sold:
However, the abovementioned pre-emption rights may be waived by the party holding such pre-emption rights.
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The transfer of properties is mainly governed by the following:
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No, the laws governing the transfer of real estate do not differentiate between different types of real estate.
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A lawful and proper transfer of a land use right is effected where the transfer is registered with, and the transferee is entered in the registry of, the relevant local land bureau at municipality or county level.
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Title to real estate is evidenced by registration in the PRC.
The property registration system protects a purchaser acting in good faith in a property transaction. Once the purchaser is registered with the relevant government authorities as the new owner, it is protected against claims brought by third parties that have not been registered. Therefore title insurance is not available in the PRC as the title registration is a reliable evidence of title involved.
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The normal steps involved in a real estate transaction are as follows:
The processes of registration of local land bureaus may vary from region to region.
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Buyers of large real estate transactions will typically carry out extensive due diligence to identify problem areas and seek remedies. Individual buyers of residential properties are typically only checking titles to the properties.
Due diligence will generally cover the following:
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If the relevant property is subject to a mortgage, the vendor should obtain the written consent for the sale from the mortgagee. If the relevant property is jointly owned, all owners who are registered in the property ownership certificate need to give consent before the transaction may take place.
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Under Article 16 of the Administrative Measures for the Sale of Commodity Houses (2001), sales of commodity houses (being all real estate that is available on the open market) must be in written form and include the following terms:
Article 12 of the Contract Law of the PRC sets out the requirement that contracts include key terms, including the designation of the parties, the quality and quantity of goods, time, place and manner of performance, liability for breach of contract and means of dispute resolution.
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Seller's warranties for commodity housing (being all real estate that is available on the open market) are set out in the Administrative Measures for the Sale of Commodity Houses (2001).
Under Article 32, the real estate development company must offer the buyer a (rather comprehensive) set of warranties in a Warranty of Residential Building and a Manual for House Use.
Under Article 33, the real estate development company must guarantee the repair of the house sold to the buyer. The parties must agree in the contract on the scope, period (subject to statutory minimums) and responsibility for the guarantee and so on. The period of guarantee is to be calculated from the day of delivery. The real estate development company must keep the house in good repair and be liable for losses resulting if such quality problems occur within the guarantee period and fall within the guarantee scope.
In addition, the Administrative Regulations on the Quality Management of Construction Engineering set out a regime for ensuring developers and construction contractors meet their warranty obligations.
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Purchasers of commodity houses may bring claims under the warranties and guarantees provided for by statute (see Seller's warranties). The purchaser may claim damages (subject to contractual provisions) if the property fails to meet the standard which is specified in the contract by the seller's representation.
Specifically, under Article 35 of the Administrative Measures for the Sale of Commodity Houses (2001), where a purchaser claims that the main structure of the commodity house is in poor quality after its delivery, it may have the property re-inspected (commodity housing is all real estate that is available on the open market). If the house is indeed in a poor state of repair, the purchaser may return the house, and the real estate development company will be liable for the buyer's resulting losses.
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Buyers considering purchasing properties in suburban areas should ensure that the land on which the property is located is not collective land. Collective land refers to land owned by rural collective economic organizations, which are generally committees of local villagers. The management and development of collective land is tightly regulated under PRC law. Generally, collective land may only be used for the establishment of rural or township enterprises or, subject to the approval of government authorities, for the construction of residential housing or public facilities. In order to develop collective land for profit seeking enterprises, such as real estate development, the land must first be converted into state-owned land. Moreover, the sale of properties on collective land is illegal without further state approval.
Planning, construction and environmental laws may all apply. Buyers should also consider fire safety regulations and health and safety rules.
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PRC Environmental laws have generally adopted a ‘polluter pays’ approach to liability. The Administrative Measures for the Soil Environment around Polluted Land (for Trial Implementation) (污染地块土壤环境管理办法（试行）) issued by Ministry of Environmental Protection on December 31, 2016 and becoming effective from 1 July 2017, provides that entities or individuals causing soil pollution shall undertake the primary liability for its treatment and restoration.
Where an enterprise that caused contamination has been altered due to merger, acquisition or divestment of a business unit, the succeeding enterprise must take responsibility for the remediation.
In the case of the transfer of the land use right, the transferee or the third party agreed between the transferor and the transferee, shall be responsible for soil pollution or contamination of such land.
In any case, the liable entities or individuals shall take responsibility for the soil pollution treatment and restoration without time limit.
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A buyer can ascertain the permitted uses of a parcel of real estate through inspecting the relevant land grant contract and reviewing the relevant town planning scheme and relevant planning instruments.
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All developers enter into specific development agreements with public authorities through the land use right grant process, under which the local Land Administration Bureau will enter into a land grant agreement with a developer, in which in return for the payment of a substantial land grant premium, the Land Administration Bureau will grant the land user land use rights for a fixed period of time. The land grant contract will specify various construction requirements and time frames, with which the developer must comply.
Developers may enter into further framework agreements with local authorities to facilitate development projects.
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Expropriation is possible in the PRC and is often used. Regulations on the expropriation of and compensation for houses on state-owned land, issued by the State Council in 2011 provide that properties may no longer be expropriated without due process and fair compensation. Violence, coercion and cutting off utilities cannot be used to force homeowners to relocate.
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The following taxes will be incurred in asset deals:
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The following taxes will be incurred in share deals:
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What are the buyer's remedies against misrepresentation by the seller of real estate?
Purchasers of commodity houses may bring claims under the warranties and guarantees provided for by statute (see Seller's warranties). The purchaser may claim damages (subject to contractual provisions) if the property fails to meet the standard which is specified in the contract by the seller's representation.
Specifically, under Article 35 of the Administrative Measures for the Sale of Commodity Houses (2001), where a purchaser claims that the main structure of the commodity house is in poor quality after its delivery, it may have the property re-inspected (commodity housing is all real estate that is available on the open market). If the house is indeed in a poor state of repair, the purchaser may return the house, and the real estate development company will be liable for the buyer's resulting losses.
Last modified 22 Mar 2024