China: China Update: Chinese Real Estate

Last Updated: 5 June 2007
Article by Paul D. McKenzie

China’s New Property Right Law

The PRC Property Right Law ("Property Law") was promulgated and approved by the National People’s Congress ("NPC") on March 16, 2007 and will become effective from October 1, 2007. The Property Law, which covers a wide range of matters affecting both personal and real property, is one of the most important pieces of legislation to be promulgated in the People’s Republic of China ("PRC") in recent years. Work on the Property Law started in 1993 and previous drafts underwent a record number of readings by the Standing Committee of the NPC.

The Property Law expands existing provisions regarding property rights and is a major milestone in the development of a more systematic regime for protection of property rights. It, like the PRC Contract Law, promulgated in 1999, is a core constituent part of China’s civil law and it confers, for the first time, equal protection for property rights of the state, collectives and individuals.

Below are some of the more significant provisions of the Property Law affecting real estate in China.

Equal Protection for Private Property; Strengthening the Protection of State-Owned Property

Protection of Private Property Rights: The Property Law for the first time places private property rights on the same footing as state and collective property rights in enjoying legal protection. Private real property may only be expropriated for "public interest" and compensation must be given in accordance with laws. There is, however, no clarification on what amounts to public interest or how compensation will be computed. Official commentaries on the Property Law note that in practice, due compensation for expropriation has often not been paid or not been paid in full. It is anticipated that the Property Law will serve as the basis for tightening expropriation procedures and increasing compensation paid. In some cases this will have the effect of increasing the land price a developer pays when it acquires State-owned land use rights in connection with a development project.

Strengthening Protection of State-Owned Property:The Property Law specifies that certain types of property -- such as urban land and public infrastructure including railroads and public roads -- are owned exclusively by the State and may not be in private hands. It also provides that the State Council exercises ownership of State-owned property on behalf of the State except where otherwise provided by law.

These provisions serve to reaffirm certain key aspects of the Chinese economy, most notably in relation to the real estate sector that urban land is State-owned and that only land use rights but not private ownership is available to developers and other private users.

Real Property Registration

Uniform Real Property Registration System:The Property Law contemplates that China’s real property registration system will be unified nationwide and property right holders and interested parties may apply to retrieve the information filed with the registry. Currently, information on land use rights, building ownership and mortgage rights may be separately filed with different local real estate or construction administration authorities. That information is usually not accessible except with the registrant’s written consent. The new law therefore ought to facilitate searches on title and related property rights. However, it remains unclear whether any person will be entitled to search the registry or whether applicants must establish some relationship to the property at issue. Implementation of these provisions of the Property Law will need to be monitored closely.

Effect of Real Property Registration:The Property Law provides that a contract relating to real property rights is binding upon conclusion of such contract, unless otherwise provided by law or contract.

At the same time, it states that the creation, alteration and extinguishment of real property rights are "effective" upon registration. Registration of an interest in real property therefore is necessary in order for the interest to be protected against third party claims against the property. The Property Law stipulates that the registration record maintained by the relevant registration authority will be evidence of ownership and other relevant property rights.

It is unclear how far PRC courts will be prepared to look behind the "veil" of registration under the new regime, although the Property Law does provide that if the property right ownership certificate issued to the relevant owner and the real property registration record are inconsistent, the latter will prevail unless the contrary is proven. Furthermore, the new law provides for the first time that the registration authority is liable for losses caused to holders of property rights if it has entered the title registration incorrectly.

A unified property registration system, if implemented properly, should considerably enhance certainty in real estate transactions although implementation throughout the country can be expected to take some time.

Scope of Pre-registration System Expanded:The Property Law has expanded the scope of China’s real property pre-registration system. The Property Law provides that parties who enter into a contract for the sale and purchase of real property or other forms of immovable property may, for the purpose of protecting the establishment of relevant property rights, apply for pre-registration with the registration authority. After pre-registration has been completed for a particular property, the registered owner of the property may not sell the property to a third party without consent from the party whose interest in the property has been registered. Note that pre-registration under the Property Law becomes ineffective if the underlying property right is extinguished or a registration application is not made within three months following the pre-registration.

In contrast under current rules, pre-registration is principally available only in connection with sales by a developer of residential property where the developer has obtained a pre-sale permit.

In principle, the pre-registration system under the new law will help protect the interests of buyers of real property during the interim period between contract signing and formal registration of the transfer of property rights.

Exclusive Ownership and Joint Ownership

Significantly, the Property Law clarifies the ownership rights of individual owners in a building. Specifically, an owner of a unit in a building enjoys (i) exclusive ownership over its own unit, and (ii) joint ownership and right of management along with other owners over the common areas and facilities. Before promulgation of the Property Law, ownership of common areas and facilities in residential and commercial buildings was largely regulated by municipal level regulations, if any, which led to developers to often remain the de facto owner.

Easements and Rights of Access

Before promulgation of the Property Law, there were no specific statutory provisions expressly providing for easements over real property. The closest equivalent under prior law are certain provisions and court pronouncements regarding adjacent owners’ relations and access rights and easement rights that were contractually created did not generally run with land.

The Property Law recognizes an easement as a registrable right of use of the immovable property of another party. An easement is created by written contract between the parties, but is enforceable against third parties only upon registration. Once registered, an easement will generally be binding on the transferee upon the transfer of the land use rights, unless terminated by the owner/user of the land under specific circumstances.

The Property Law also clarifies the scope of "access rights" an owner or user of immovable property has to the property of a neighbor. Specifically if an owner or user of real property requires access to adjacent land or structures for construction or repair of buildings or laying of electrical lines, cables, water pipes, heating and gas pipes, then the adjacent owner must grant the necessary access, subject to compensation for any damage caused by such work. Whether such an access right is recognized will depend on the principles of "facilitating production, convenience, unity and cooperation, fairness and reasonableness," and laws, regulations and local customs will be respected when determining such a right.

Extension/Expiration of Land Use Rights

Grants of use rights in respect of urban land were first made in the 1980s, with applicable use terms of between 40 and 70 years and an open issue has been what would happen to the land and building on the land when the term of use rights expired.

For the first time, the Property Law states that the land use rights to land for residential purposes will be extended automatically upon expiration of its term. The new law leaves unstated what fee, if any, is payable for the extension of land use rights.

No similar provision applies to the commercial or industrial land use rights. The Property Law simply states that ownership of buildings and other related real property rights upon the expiration of the relevant land use rights may be determined by contract.

Mortgage Rights

The Property Law updates existing legislation governing security interests, including mortgage interests in immovable property. In particular, the Property Law permits buildings under construction to be mortgaged, with such mortgage taking effect from the date of registration of the mortgage. The Property Law also provides that the mortgage of construction land does not automatically extend to newly constructed properties on the mortgaged land. These aforementioned provisions serve to clarify and confirm the current judicial practice in these areas.

Shanghai’s New Bidding Rules for Land Use Rights

On April 27, 2007, the Shanghai Housing, Land & Resources Administration Bureau (the "SHLRA") published the No. 1 State-owned Land Use Right Bidding Announcement (the "2007 No. 1 Announcement"), which further relaxes the restrictions imposed on a foreign investor’s ability to bid for land use rights in Shanghai. Pursuant to the 2007 No. 1 Announcement, successful bidders of land use rights now have a choice of paying the land premium deposit either in Renminbi or in 4 other currencies, namely the US dollar, the HK dollar, the Euro and the Japanese yen.

Prior to the promulgation of the Opinions on Regulating the Entry into and the Administration of Foreign Investment in the Real Estate Market ("Opinion 171") on July 11, 2006, foreign investors had been allowed to bid for land use rights in Shanghai without having to incorporate a PRC subsidiary. Thereafter, in response to the restrictions imposed on foreign investment in the real estate market set out in Opinion 171, the SHLRA amended its bidding rules in the No. 1 State-owned Land Use Right Bidding Announcement of 2006 published on August 17, 2006 ("2006 No. 1 Announcement") which prohibited foreign investors who had yet to obtain the approval certificates and business licenses for their PRC subsidiaries, from bidding for land use rights. Pursuant to the 2006 No. 1 Announcement, a foreign investor had to establish a PRC subsidiary and contribute at least half of the project costs as registered capital to the PRC subsidiary before it could bid for, and acquire land use rights. This effectively increased the barriers to entry for many foreign investors looking to invest in the Shanghai property market as it made the implementation of such an investment structure financially unfeasible.

The SHLRA subsequently relaxed its bidding rules on October 23, 2006 with the publication of the No. 2 State-owned Land Use Right Bidding Announcement ("2006 No. 2 Announcement") which re-allowed foreign investors to bid for land use rights without having to set up a PRC subsidiary, but which stipulated that any such land premium deposit had to be paid in Renminbi. Both the aforementioned eligibility requirement and currency limitations were repeated in the subsequent bidding announcements of 2006 in Shanghai. Though technically eligible to bid for land use rights pursuant to the 2006 No. 2 Announcement, in reality, most foreign investors were still constrained by the Renminbi currency limitations.

The new 2007 No. 1 Announcement effectively removes these restrictions on a foreign investor’s ability to bid for land, and gives a foreign investor enhanced flexibility in structuring its investment in the Shanghai real estate market. However, it is worth noting that the 2007 No. 1 Announcement is limited in its scope to Shanghai, and in particular, to the land parcels listed in the 2007 No. 1 Announcement. Eligibility requirements may and do vary in other provinces and cities. For example, only domestic PRC companies holding real estate development qualifications are allowed to bid for land use rights in Beijing. Furthermore, this new eligibility requirement in the 2007 No. 1 Announcement pertains only to land bidding activities. Upon the conclusion of a successful bid, foreign investors are still required to set up PRC subsidiaries to acquire the land, to pay the land premium (less the land premium deposit) and to develop the project in accordance with Opinion 171 and other applicable PRC laws and regulations.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Paul D. McKenzie
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions