| Real Estate Development Related Laws, Regulations and Policies
By Song Chongyu
China's real estate policies have been experiencing substantial changes during recent years. The Chinese real estate policies mainly are constituted by laws, regulations, rules, decrees issued by national Legislative Body or Government departments. Additionally, to harmonize regional and national policies, many local governments have promulgated similar rules. The following is the brief illustration about some commonly used laws for real estate development.
Firstly, investors should take note of the administrative Urban Real Property Laws promulgated in July 1994 and modified on 30, August 2007 . These laws were created essentially to curb speculation in real estate in China. They cover the general principles on the use of land for real-estate development, the development itself, its transfer, leasing and mortgaging of property, titles and legal liability. A developer is required to commence work on the land that it has contracted within a year of the agreed date of the contract. If it fails to commence work within the stipulated one-year period without valid reasons, it is liable for a fine up to 20% of the land cost or leasing fee. After two years, its' land use right for the said land may be withdrawn.
In May 2002, the Ministry of Land and Resources issued a regulation regarding the land use right transfer. In the past, private parties were able to transfer land use rights by mutual agreement, but such practice is prohibited by the new regulation. Under the restructured scheme, any procurement of land for business purposes, including commercial, tourism, entertainment and commercial residence, can only be carried out through bidding, auction and listing on an authorized exchange floor.
Additionally, in August 2003, the State Council issued a notice on the healthy development of the real estate market. Among other things, the notice emphasizes that land supply must be strictly controlled and that the examination .
However, in consideration of high risks for real estate investment, and Chinese special legal system, to learn and understand what would be court's opinion on many disputable issues is very necessary and important. That is why we shall emphasis the importance of some judicial interpretations before making the decision to investment in real estate projects.
The Supreme People's Court issued in April 2003 a judicial interpretation on the applicable law for cases of commercial housing sales contracts. It provides that it is illegal to execute the sales contract before the developer obtains a pre-sale permit. The note imposes more obligations on the developer. For instance, the developer must, at the time of contract execution, disclose to the buyer whether the property is subject to a mortgage. Another important judicial interpretation issued in 2002 related to the priority of construction fee remuneration. It clarified Article 286 of the Contract Law and reaffirmed that the contractor's right to construction remuneration prevails over mortgage and other creditors' rights.
On June 18, 2005, the Supreme People's Court issued a judicial interpretation concerning disputes over state-owned land use rights contracts. The judicial interpretation, which became effective on August 1, 2005, provides guidance as to the contract validity of existing or potential parties to land use rights contracts and the considerations potential claimants should make before commencing legal proceedings over land-use rights. The Judicial Interpretation regulates three types of contracts. Firstly, contracts for land use rights obtained by grants from the municipal or county government land management bureau. Secondly, contracts for the transfer and sale of certain land use rights from the owner to a purchaser. Thirdly, contracts for the joint development of real estate projects by parties contributing by way of land use rights, capital, or others means, with shared profits and risks.
Recently, the Chinese government has promulgated a number of new decrees to impose stringent restrictions on foreign investment in real estate. Such as "Decree No .171", jointly promulgated by six authorities under the State Council , (Jianzhufang [2006] No. 171) on July 11, 2006, which provides practice guidelines for the entry and administration of foreign investment in China 's real estate industry. In addition, the Ministry of Commerce ("MOFCOM")and the State Administration of Foreign Exchange ("SAFE")jointly promulgated the Circular on Reinforcing and Regularizing of Approval and Supervision of Foreign Direct Investment in the Real Estate Sector on May 23, 2007 (Shangzihan [2007] No. 50, "Decree No .50" ) , and the General Affairs Department of SAFE issued a circular to release the list of the first batch of foreign invested real estate projects filed with MOFCOM on July 10, 2007 (Huizongfa[2007] No.130, "Decree No.130"). It seems that these regulations make it more costly and difficult for foreign investment to enter into China's real estate sector.
Summarily, investors shall have a comprehensive knowledge of Chinese Real Estate Policies before making the investment decision.
If you may have any comments or qestions regarding this article, please contact Mr. Congyu Song by, Tel: 86 10 59051098 Mobile: 86 13911525071 Email: cy_song@sina.com
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