China: Sale and purchase

Real estate ownership

Forms of real estate ownership
Land in the PRC is owned by either the state or the collectives, and there is no private ownership of land. However, private entities and individuals can have the land-use right of the state-owned land (土地使用权, “LUR”) for a specific term. The following are the maximum terms for the respective purposes under the LUR:

  • 70 years for residential purposes;
  • 50 years for industrial purposes;
  • 50 years for educational, scientific and technological, cultural, health care and sports purposes;
  • 40 years for commercial, tourism and recreational purposes; and
  • 50 years for comprehensive utilization or any other purposes.

LURs are initially obtained through either allocation (划拨) by the government (with no land premium being required), or granted (出让) by the government upon payment of a land premium. LURs that are allocated by the government cannot be transferred, assigned or let, while LURs that are granted can be transferred, leased, mortgaged or otherwise commercially exploited, subject to certain land use conditions.

The LUR of land for operational purposes, such as industry, business, tourism, entertainment and commercial residential housing shall be granted by way of tender, auction or listing for sale at a land exchange administered by the local government. In the case where a land parcel is supplied for the purposes other than the aforementioned and there is only one prospective purchaser after the public announcement of the supply plan for such land, the LUR can be granted by way of bilateral agreement with the local government. Buildings erected on the land, not the land per se, can be owned by private entities and individuals (房屋所有权) .

LURs are terminated upon expiry of the term of years granted. Upon expiry, a renewal may be granted, subject to the execution of a new contract for the grant of LURs and payment of the land premium. If the term of grant is not renewed, the LURs and ownership of any buildings erected on the land will be reverted to the state.

Major property legislation
Major property-related legislations in the PRC include:

  • The PRC Constitution (中华人民共和国宪法);
  • The PRC General Principles Of the Civil Law (中华人民共和国民法通则);
  • The PRC Property Law (中华人民共和国物权法);
  • The PRC Land Administration Law (中华人民共和国土地管理法);
  • The Implementing Regulations for the PRC Land Administration Law(土地管理法实施条例);
  • Interim Regulations of the People’s Republic of China Concerning the Assignment and Transfer of the Right to the Use of the State-owned Land in the Urban Areas (中华人民共和国城镇国有土地使用权出让和转让暂行条例);
  • The PRC Urban Real Estate Administration Law (中华人民共和国城市房地产管理法); and
  • Regulations on the Administration of the Development and Operation of Urban Real Estate of the PRC (城市房地产开发经营管理条例).

Title registration
LURs and title to real estate are subject to registration. The registries are under the relevant government authorities’ control. The main information in the public register of titles include the following:

  • Term of the LUR;
  • Area of the building;
  • Location of the land;
  • Type of structure of the building;
  • Permitted usage;
  • Owner’s name;
  • Completion date; and
  • Mortgage.

Transfer of real estate ownership
The usual process for transfer of commercial real estate in the PRC includes:

  • The purchaser will carry out legal and technical due diligence, including title search at the land and/or real estate authorities, confirmation of relevant government approvals as to land use, review and confirmation of any unregistered interest and applicable tax payment receipts, inspection of the physical condition of the property, due diligence on the target company if the property transaction is to be effected via a share transfer;
  • The parties should execute a written purchase agreement setting forth the terms of the transfer;
  • The parties will file an application to the local real estate authority for the registration of transfer of the title from the seller to the purchaser and issuance of the new title certificate. The seller must first pay off any expenses that are on the property such as loans and taxes before proceeding to transfer the title. Applicable taxes related to sale and purchase of the commercial real estate shall also be paid up before issuance of the new title certificate.

Direct (i.e. asset transfer) vs indirect (i.e. share transfer) transfer of real estate
For a real estate transaction effected by way of an asset transfer, the purchaser in direct property acquisition should be a PRC registered company or a PRC individual.

In the current PRC regulatory environment, a foreign investor is required to establish on shore “commercial presence”, i.e. to set up a foreign-invested enterprise (“FIE”) to invest, develop, own, or operate real property in the PRC (with the exception of real estate held for personal use). However, there are some commercial real estate in the PRC that are directly owned by offshore vehicles as they had been acquired by foreign investors prior to 2006, before the Chinese government authorities introduced restrictions on foreign investors’ entry into the PRC real estate market.

In addition, for various business and tax reasons, it is common for foreign investors to use an offshore intermediate holding company to own their interest in a Chinese project company holding the underlying commercial real estate in the PRC.

In view of the above situations, the following discussions include the common types of transfer of commercial real estate used by foreign investors in the PRC:

  • Asset transfer by an FIE as the seller;
  • Asset transfer by an offshore entity as the seller;
  • Transfer of share in an FIE holding the underlying real estate (“Onshore Share Transfer”); and
  • Transfer of share in an offshore entity indirectly holding the underlying real estate (“Offshore Share Transfer”).

The transfers of the real estate by the owner of the real estate (either the FIE or the offshore entity) are governed by the PRC law and will be subject to the relevant PRC registration requirements.

The foreign investor may transfer all or part of the equity interest in the FIE holding the real estate directly. Such Onshore Share Transfer is conducted in the PRC and will be subject to full PRC filing and registration requirements, which may involve government discretion.

Alternatively, the foreign investor may transfer the underlying PRC commercial real estate by transferring all the shares of the FIE’s foreign parent (i.e. the offshore company). Such Offshore Share Transfer will be conducted in the jurisdiction of incorporation of the offshore company and is generally not subject to PRC jurisdiction and review, except for PRC taxation on the indirect sale of PRC taxable assets. In addition, if the offshore company’s ultimate shareholders are PRC nationals, certain PRC filings should have been made with the foreign exchange authorities in the PRC.

Considerations for foreign ownership of non-residential real estate
Foreign-invested enterprises (“FIEs”) or representative offices established in China, by foreign entities or a foreign individual, can purchase commercial property for self-use or self-accommodation, subject to several regulatory restrictions at national and local levels.

If a foreign investor (an entity or individual) intends to purchase real estate, not for self-use but to invest, develop, own or operate real property in China, the foreign investor is required to establish onshore “commercial presence”, i.e. to set up an FIE . That being said, there are a number of foreign entities or individuals which/who have acquired commercial real estate in China prior to 2006 and still directly owns them.

Exchange Control Issues
China imposes foreign exchange control and categorizes foreign exchange transactions into current account and capital account items. Current account items include foreign exchange transactions related to the trading of goods or services, remunerations, dividends, interest, etc. Capital account items include foreign exchange transactions of a non-trade, non-recurring nature, such as direct investments, real estate purchase, borrowing, repayment of foreign loan, etc. Capital account items are subject to stricter control.

Foreign investment and FIEs involved in China’s real estate sector will be subject to the control over foreign capital flow, including restrictions on debt financing, foreign exchange settlement and other measures.

Foreign investment in the PRC’s residential real estate development and construction was once encouraged by the Chinese government. However, in an attempt to curb the then overheated real estate market, Chinese government authorities issued a circular in 2006, providing for certain restrictions on foreign investors’ entry into the PRC real estate market and operating in it. These restrictions include imposing requirements for foreign investors to establish a local presence in China for such purposes and higher equity-to-debt ratio on foreign-invested real estate enterprises, etc. However, it has been observed that in recent years, the central government has strengthened its efforts to open up and boost the real estate market in wake of the current economic slowdown, having gradually loosen the rules on foreign investment in real estate. In particular, the 2015 Circular relaxes a number of restrictions introduced by the 2006 Circular.

Asset transfer


  • The purchaser only needs to acquire the real estate without assuming the existing obligations, liabilities or restrictions of the company owning the real estate;
  • It is relatively straightforward as asset transfers are generally not subject to the filing and registration with the local authorities (except for the registration of ownership change in real property).


  • Various contracts related to the commercial real estate (such as lease) might be assigned to, re-negotiated or resigned by the purchaser of the commercial real estate with the corresponding contracting parties to such contracts. This process could cause the purchaser to incur additional time/costs to complete the transaction;
  • The transfer of commercial real estate typically results in a much higher tax cost to the seller, which in turn may affect the transfer price. Such tax includes the land appreciation tax and value added tax. To the buyer, this includes the deed tax.
  • In the case where a new onshore acquisition vehicle is needed to be established, the incorporation of such new entity can take months.

Onshore share transfer


  • Generally, a share transfer is more tax efficient than an asset transfer for both seller and buyer.


  • The buyer acquires the target company including all its assets, liabilities and employees. As such, the buyer may potentially assume hidden or unknown risks and liabilities of the target company;
  • Detailed and extensive due diligence (legal, financial, property etc.) is required; and
  • As opposed to indirect (offshore) acquisitions, direct acquisitions will be subject to filing (approval is needed in some cases) and registration by the relevant PRC Approval Authorities. Not only is this process time consuming, it also presents opportunities for PRC authorities to scrutinize, and possibly intrude on, the parties’ contractual terms. Meanwhile, various specific PRC legal requirements, such as state-owned asset appraisal if the seller is a state-owned enterprise, may also apply to the transaction and may add further complications and variables to the process.

Offshore share transfer


  • Generally, an Offshore Share Transfer can take place wholly offshore and is not subject to PRC filing and registration with the exception of certain circumstances (such as anti-monopoly review); and
  • Generally, an Offshore Share Transfer does not trigger any PRC tax liability. However, China may impose an enterprise income tax on a foreign entity income derived from indirect transfer of the PRC taxable assets under certain circumstances.


  • This option cannot be used for acquisition of purely domestic targets with no foreign shareholders.

Sale and purchase process

Typical process
In the PRC, properties can be bought directly via developers, enterprise, individual sellers or an agent. To make a lawful and proper transfer of real estate, registration with relevant authorities is required. Although the processes of the commercial real estate transaction may vary, there are some common steps.

If the purchase is made directly from a real estate developer, the developer will enter into a Real Estate Irrevocable Purchase Order (房屋认购书) with the purchaser who is required to pay a deposit. Since the sale of real estate usually takes place prior to the completion of a property construction, both parties shall subsequently enter into a Real Estate Pre-sale Agreement (不动产预售协议). This is the master agreement of the transaction, and it shall be submitted to the relevant real estate administrative authority for registration. The property will be delivered to the purchaser after the completion of the construction, which usually takes about two years. It shall be noted that the Property Title Certificate (房地产所有权证) will not be issued to the purchaser immediately. In practice, it will often take no more than one year from the date of delivery for the developer to finish the formalities to apply for the Certificate. It shall also be noted that the developer shall first obtain sales approval from the competent local land resources and real estate authority before starting onshore strata-title sales for units within a project.

For purchases made from individuals, parties will enter into a Sale and Purchase Agreement based on a standard form provided by the local real estate administrative authority. Purchasers usually carry out due diligence prior to the execution of the agreement. A copy of the duly executed agreement shall be submitted to the relevant real estate administrative authority. In order to receive a legal and complete title of the property, parties should change the property title information at the Immovable Property Registry (不动产登记机构) as the Record of Immovable Property (不动产登记簿) is the legal basis of ownership . In practice however, there are still a considerable amount of disputes arising from improper registration in such transactions.

The registration processes of the Immovable Property Registry may vary between regions.

Due Diligence
In large real estate transactions, the purchasers will usually conduct extensive legal and financial due diligence. For a share acquisition deal, the legal due diligence typically includes an investigation into the target company’s credit, debt, operation conditions, employee and management issues, ongoing litigation and arbitration cases. The legal due diligence would also focus on the title of the property and restrictions on the usage rights. Lawyers may primarily focus on title issues and encumbrances for asset acquisitions. For second-hand real estate transactions in the PRC, the Record of Immovable Property kept by the Immovable Property Registry is an important source to consult.

Consent should be obtained for certain real estate transactions in the PRC. For example, except as otherwise agreed by the parties, the title transfer of real estate requires the consent of all the co-owners. Save as otherwise agreed by the parties, if the property is owned by at least two parties by shares, the consent of not less than two-thirds value of the shares shall be obtained in order to transfer the asset . If the relevant property is subject to a mortgage, the seller should obtain the consent for the sale from the mortgagee.

Sale and purchase contract

General components of a sale contract
The contracts that real estate developers use in real estate transactions are often based on a template provided by the local governments. In practice, real estate developers are required to submit a copy of the real estate sale and purchase contract to the authority for registration. The terms are often unnegotiable for individual purchasers.

Article 16 of the Administrative Measures for the Sale of Commodity Houses (2001) provides that a real estate sale and purchase agreement should contain the following terms:

  • Title or name and domicile of the parties;
  • Basic conditions of the commodity houses;
  • Sales pattern for the commodity houses;
  • Method of fixing the price, total price, manner and date of payment;
  • Conditions and date of delivery for use;
  • Decoration and facility standards requirements;
  • Requirements for the delivery of supplementary essential facilities, such as the supply of water, electricity, heating, gas, communication, roads and gardening, and of public facilities, as well as relevant rights, interests and obligations;
  • Ownership of property rights in relation to public ancillary constructions, such as hospitals and community centers built in accordance with state or local government requirements;
  • The method for dealing with any discrepancy between the floor area stipulated in the contract and the area actually delivered;
  • Relevant matters concerning the land use right registration;
  • Methods of dispute resolution;
  • Liabilities for breach of contract; and
  • Other items agreed upon by both parties.

Transfer of occupational leases and income
If the property transaction is effected by a share transfer and not an asset transfer, there will be no change of registered owner holding the property, and the benefit of any occupational leases and income remains the same.

If the property is sold as an asset transfer subject to a lease, the sale and purchase agreement normally will specify that the purchaser will assume all the rights, obligations and liabilities under the subsisting lease. A novation agreement should also be entered into to replace the purchaser as the new lessor who shall continue to receive the rental income after the purchase of the property has been completed.

Common rights, interests and encumbrances
Property interests include:

  • Ownership rights;
  • Usufructuary rights, which include:
    - Land contracting rights;
    - Construction land use rights;
    - Homestead land use rights;
    - Easements; and
  • Security interests.

Real estate rights are created by registering the relevant instruments at local registration authorities and title certificates serve as evidence of title. The Land and Resources Department of the State Council and the People’s Government govern the local authorities.

Typical representations and warranties
Article 32 of the Administrative Measures for the Sale of Commodity Houses (2001) (商品房销售管理办法(2001)) provides the warranties provided by the real estate development companies and shall be in accordance with the Rules for Warranty of Residential Building and the Manual for House Use (商品住宅实行质量保证书和住宅使用说明书制度的规定). Under Article 33, the real estate developers must warrant the repair of the sold house to the purchaser. The period of the warranty should be specified in the agreement and be calculated from the day of delivery. The real estate development companies are not responsible for the damages caused by force majeure and/or improper use.

Remedies against misrepresentations
The purchaser of the real estate may make claims against the real estate development company for misrepresentation on the basis of the developer’s representations and warranties, as well as the statutory requirements.

Under Article 35 of the Administrative Measures for the Sale of Commodity Houses (2001), the purchaser may return the property if the quality test shows that the main part of the property is indeed in a poor state of repair. The real estate developer would also be liable for any loss incurred by the purchaser as a result of such purchase.

Costs relating to sale and purchase of real estate

In an asset transfer, the purchaser is subject to deed tax and stamp duty, while the seller is subject to stamp duty, land appreciation tax, value added tax and related surcharges, and enterprise income tax (or individual income tax, as applicable). For a share transfer, the purchaser is subject to stamp duty, while the seller is subject to enterprise income tax (or individual income tax, as applicable) in addition to stamp duty.

Estate agent’s fees
The broker / estate agent arranges for listing and viewing of property. He/She also helps the seller and purchaser negotiate key terms for the sale and purchase. In addition, he/she assists the purchasers in matters such as passing of keys and arranging for inspection of the property if a vacant possession is to be delivered on completion. Broker / estate agents’ fees are charged at a rate of 1.5% to 2.5% of the purchase price, but this is open to negotiation.

Legal fees
Lawyers are appointed to negotiate, prepare and execute the documents necessary for the conveyance of property (e.g. sale and purchase agreement, assignment; and for share transfer, contract notes, instrument of transfer and the necessary shareholders’ resolutions or board of directors’ resolutions).

The purchaser’s lawyer will conduct title review and investigation of the property. The seller’s lawyer will answer title requisitions raised by the purchaser’s lawyer (if any) and arrange to remedy any title defect(s).

For share transfer, the legal due diligence will be carried out by the lawyers.

Seller’s lawyers are also typically involved in discharging the existing mortgage (if any) for the seller, while the purchaser’s lawyers would help the purchaser in the legal documentation for the financing of the purchase.

The seller’s lawyers will typically arrange for stamping and registration of the relevant instruments.

There is no fixed scale of legal fees. Parties will negotiate the applicable fees with their respective lawyers.

Other fees
Stamp duty as well as certain registration fee, are applicable.

Updated on 1 March 2019.

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