Transition gaps may hinder new property registration

The State Council's Tentative Regulations for the Registration of Immovable Property that went into effect on March 1 seek to consolidate a property registration system that – if implemented vigorously – have the potential to increase transparency, reduce local inconsistencies and make it harder to hide assets from court order enforcers.

The pilot program includes fifteen cities that will be part of the unified database, allowing government departments to share information in real time about ownership, purpose of use, location and size of all registered property. All types of real estate, including homes and buildings, forests, farmland, construction land use rights and mortgages will be part of the new system.

“The new system provides a uniform format for the property certificate, and a centralised bureau will ensure the same standards across regions,” said Harry Du of King & Wood Mallesons.

Until now, provinces have had different systems and regulations for real estate. For instance, it was common for some cities to issue a joint certificate for land and property, while others required separate applications.

The aim is to strengthen the authorities' oversight of property rights enforcement amid a corruption crackdown against officials and businessmen who own multiple properties in different provinces. The separate and diverse local real estate systems have made such investigations difficult.

Another benefit of the national database is that it can help uncover assets of debtors in investigations and court orders, an area where enforcement has long been a problem in China.

“Previously, you had to know exactly where the asset was located and go to the local bureau,” said Du. “If your order is in Beijing then you can find the debtor's Beijing assets, but what if he has property in Yunnan? Now, with an order from Beijing you can go to the system to locate all properties with one single number.”

While this works in theory, it does not offer a silver bullet solution to discovering assets. One challenge is that people in China often register property under their relatives' names.

Applying the rules

The market needs to wait to see how the system will work in practice, said Richard Kim of Allen & Overy.

“Real estate will still get done at the local level but it's a matter of coordination between the central and local governments to get the information up and implement the system effectively,” he said.

The draft implementing rules were issued on March 26 and although they provide details of registration procedures, there remain gaps that “will give local authorities the power to implement their own interpretations,” Maria Wang of Morrison & Foerster told China Law & Practice in an email.

For instance, the implementing rules suggest local governments come up with their own guidelines for the “other necessary materials”, leaving room for ambiguity. They also fail to define criteria for interested parties to conduct public searches, leaving it to regional authorities to set their own requirements.

The local government therefore has “the ultimate power to decide whether a person has established an interest in the property and thus permit him to carry out the searches,” Wang wrote.

Another aspect that was unclear to practitioners was the lack of guidance on the transitional arrangements between the current and new standardised registration systems.

“It will take a long time as there are lots of local level rules that need to either fall away or be rewritten to align with the central regulations so as to eliminate uncertainty,” Allen & Overy's Kim said.

The implementing rules also do not clarify when and how existing registration certificates will be replaced, nor do they provide details on how information will be transferred to the new system.

“Some localities already have in place a well-established and maintained process (e.g. Shanghai and Beijing) but may be different to this national registration system,” Wang explained. The lack of clear guidelines suggests that even these may not find it easy to adapt.

At the other end of the spectrum, rural areas, which have little or no experience with such formal systems and transactions, may be left floundering.

Personal data, property tax

The information on the database is not open to the public and only government personnel or those with a judicial order are given access. It is uncertain yet whether lawyers are granted rights. But some property owners are worried about how the information will be handled.

There is talk that the government is putting this system in place to control housing prices and enforce taxation. The increased transparency would shed light on the exact amount of property in a particular city as well as who owns what and how many. This would allow authorities to draft policies accordingly to control the real estate market.

The National People's Congress is said to be working on drafting a property tax legislation, which is expected to take effect by 2016. The national property tax will mostly likely target both housing and land.

A pilot scheme to levy property taxes in Shanghai and Chongqing was initiated in 2011, but was criticised for failing to slow real estate prices because their rates were too low. The plan to expand the scheme was put on hold in order to focus on producing the national property tax legislation.


By Katherine Jo