5 facts about Chinese Real Property Law

Last week I had a telephone consultation on a rather more exotic area of law, Chinese real property law. I would like to explain my key takeaways on the topic. Specifically, I have summarized these into 5 quick facts:

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Number 1: According to Article 10 of the Chinese Constitution, land is owned by the state or collectively; individuals or legal entities cannot acquire ownership of land. Instead, so-called land use rights are acquired by free allocation or paid transfer; Land use rights granted free of charge are only marketable to a limited extent. Land use rights granted against payment, i.e. by auction, contract or tender, may be transferred, leased, mortgaged or contributed in kind in accordance with Art. 353 of the Civil Code.

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Number 2: The holder of the land use right acquires ownership of the buildings erected on the land managed by means of a land use right. Ownership of these buildings may only be transferred together with the land use right concerned.

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Number 3: With the entry into force of the Civil Code (ZGB; Civil Code) on 1 January 2021, real property law was revised. Since then, the regulations can be found in Book 2 of the Civil Code. In particular, according to Art. 207 of the Civil Code, the rights to property in rem of the state and private property are equally protected by law.

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Number 4: Land use rights are generally only valid for limited periods of time. Land guarantees for housing have a maximum duration of 70 years, for industrial or cultural purposes 50 years, for business or commercial purposes 40 years. Some local governments have also issued land guarantees for shorter periods. There are regulations for automatic renewal of the rights of use.

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Number 5: Despite the general non-existence of a permanent real property right, a property tax exists under Chinese law. According to the Real Estate Transfer Tax Law, any organisation or individual to whom land use rights within the territory of China are transferred must pay property tax. Also the conversion into an investment (capital participation) is subject to property tax. However, the tax authorities have declared some exemptions from property tax in 2021, in particular inheritance and transfer of land use rights and real estate in cases of complete restructuring of companies, mergers and divisions as well as transfers in bankruptcy proceedings. The rates of property tax in China range from three to five per cent.

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