The status of land in China and the importance of due diligence

State land includes mainly construction land in the urban areas, but also a small amount of agricultural land in the rural areas. State land is the main source of industrial and commercial construction land, and if the foreign investor wants to acquire state land, they must obtain the relevant rights granted to them by the local bureau of the Ministry of Land and Resources. Collective land includes land in rural and urban areas that does not belong to the state, mostly agricultural land with some construction land.

Requisition is the main method of converting collective land into state land. If people who are not members of a village collective wish to use collective land, they must first make an application to the government. If this is approved, the government requisitions the collective land and turns it into state land, and then grants the land to the other party for an appropriate fee. If the targeted land is collective agricultural land, provincial level approval is required for the conversion to industrial land.

At present, most foreign-invested enterprises (FIEs) will build factories on state construction land. There are two channels to get the land use right – land grant contract, that is getting land from the government, and land transfer contract, that is getting land from users other than government.

There are two types of land use rights :

  • Allocated rights ? meaning someone else has the title but permission to use for a specific purpose is provided to you. These take the form of an issued certificate in your name.
  • Granted Rights ? meaning you have title (ownership) of the land.

For obvious reasons, granted rights are more expensive than allocated rights. Granted rights mean you can profit from any increase in the value of the land if you develop it, whereas with allocated rights this is not the case. A certificate is also issued demonstrating the owner has legal title.

If you are offered a piece of land, you should conduct proper due diligence. If you need to know what kind of land it is, the easiest way is to ask the landlord for their land certificate. If they cannot provide it, this may mean there is a problem. If this is the case, you need to ask the landlord to provide other supporting documents to prove the land?s status.

Foreign investors should take into account the following issues :

  • strictly speaking, only local bureaus of the Ministry Land and Resources are authorised to sign land grant contracts, but in some economic development zones, such contracts are signed by the zone administrative committee
  • collective land, especially agricultural land, can only be used for this special purpose, although in some areas, the transfer of collective construction land has been permitted recently
  • the state will withdraw the land use right if the transferee does not utilize the land after two years of acquisition.

Next :
Buying, selling and renting property

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