LONG TERM IMPACT OF PROPERTY LAW UNCLEAR
October 02, 2007 | BY
clpstaff &clp articles &Property developers in China are expected to benefit from the new PRC Property Law (中华人民共和国物权法)(Property Law) when it takes effect…
Property developers in China are expected to benefit from the new PRC Property Law (中华人民共和国物权法)(Property Law) when it takes effect on October 1 2007. The Property Law was first proposed in 1993 and was finally passed by the NPC on March 16 2007, after seven revisions. The law consists of five chapters and 247 articles, covering ownership rights, the ownership registration system, condominium rights, neighbourhood rights, land contracting and managing rights, construction land-use rights, homestead land-use rights, easement and security interest, and mortgage rights.
Ashley Howlett, lead partner for Jones Day's Greater China construction practice, says that while the new law will correct many of the current legal framework's shortcomings, ambiguities regarding land-use rights could mean problems further down the road.
¡°The new Property Law will address current inadequacies such as land-use rights, ownership rights, and mortgage regulations - all of which were undeniably in need of a clear legal framework,¡± said Howlett. ¡°However, many of the details surrounding the land-use rights, such as the length of time a renewal will be valid for and the way in which the renewal applications will be processed, are still unclear,¡± he said.
The new law will allow for renewal of land-use rights when they expire, as the rights are restricted to 70 years for residential property, 50 years for industrial property and 40 years for commercial property. However, it is not clear how long the extensions will run.
It is expected that the second term for residential properties will be valid for 70 years, while there is speculation that commercial property renewals may be as short as five years and be subject to re-evaluation from the government. This could pose problems for certain businesses, such as hotels, that will have difficulty arranging sale financing or rehabilitation financing, which commonly use land-use rights as security.
Clarifications also need to be made as to how the land-use renewal applications will be processed by local and regional governments. There is reason to believe that these governments may extract additional payments when setting terms and conditions for renewal.
In the short-term, there is little likelihood that these issues will be resolved as the first round of renewals for commercial properties are not due for another 20 years.
¡°There is no doubt that this law represents a considerable improvement in the legal status for developers. The real estate market in China will certainly be an interesting place to be a property developer or investor while this law is implemented and the details surrounding the renewal of land-use rights are made clear,¡± Howlett says.
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