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Eliminating Confusion: Foreigners' Rights in the Chinese Property Market

 Recently, many of our foreign clients, including several foreign organizations and individuals, have expressed their confusion resulting from this new policy. They wonder how they should deal with their commercial housing units that were obtained before or during the establishment of the new policy, especially since there’s no specification of a transitional period for the disposal of these kinds of properties.

Beijing City Development Law Firm (CDLF) lawyers proposed several solutions after consulting with various departments of the government.

According to Opinions, non-self-use property purchase shall obey the rules of “Business Existence.” The establishment of wholly foreign-owned (WFO) enterprise shall go through the registrations with relevant authorities, which is specified in regulations concerning foreign investment in the Chinese real property market. Only after registration can these enterprises open their business within their business scope. The regulations are the same as before the establishment of the Opinion.

Therefore the proper solution for foreign investors is to apply to establish a foreign-invested company and to open a leasing and sales business under the law. This solution completely obeys the regulations found in the Opinion, but the establishment must meet some other requirements under the law and applications procedures can be formidable.

If no new enterprise is to be established, another solution is to transfer the housing to domestic companies controlled by the same foreign investors. This solution also obeys the regulations found in the Opinion.

But, there’s another solution. Under the Joint Venture Law that came into effect on June 1, 2007, foreign investors can jointly establish a limited joint venture with other domestic companies. According to the Joint Venture Law, foreign investors can contribute to investments in property. In this case, the normal partner of the joint venture shall administer and operate the enterprise and have unlimited liability to the debt; the limited partners bear limited liability to the debt with their investments and usually do not administer or operate the enterprises.

The last solution is to follow the Administration of Trustee Company and handle an estate under the name of foreigners as trustee property and assign the management rights to a domestic trustee company. This solution can also avoid limitations on foreign organizations and individuals in their leasing and management of an estate.

Specification is required for this solution: ownership does not change if the leasing and sales take place through agency or via a loan. Therefore, this solution cannot completely avoid the limitations found in the Opinion on the management of real property by foreign organizations and individuals.