The major laws in respect of land and real estate are the Constitution of People’s Republic of China, The Land Administration Law (the “Land Law”) ( which is the fundamental law governing land matters in China, first adopted in 1986 and then amended respectively in 1988 and 1998),The Law on Administration of Urban Real Estate (the “ Urban Real Estate Law” adopted in 1994 and amended in 2007)and Property Law (adopted in 2007). There are many other relevant laws and regulations in relation to the industry as well which will not be discussed here.
 

According to Land Law, China maintains a socialist public ownership i.e. an ownership by the whole people and ownerships by agricultural collectives, of land. No private ownership of land as such exists in China. In respect of ownership by the whole people, the State Council is empowered to represent the State to administer the land. Because the State has the power under the Constitution to expropriate land from agricultural collectives, with compensation in return, in the name of public interests, the collectives own their land at the mercy of the state. This means the public ownership of land is effectively owned and controlled by the government. Although all the land is ultimately owned by the government, business entities and developers may acquire land use rights from the government for terms ranging up to seventy years and then may own a structure or fixture on that land. 
 

Transfer of land use rights was made possible only in late 1980s due to the amendment of the Constitution, which provided the legal basis. In 1988, China amended Article 10 of the Constitution which originally read, “No unit or individual is allowed to occupy, trade or lease or illegally transfer land by other means”. The amendment further provides that “The right to the use of land may be transferred in accordance with the law.” While this provision may seem insignificant in its length, it was revolutionary at the time. The amended Constitution still prohibits private ownership of land, but it does allow the government to grant land use rights for a specific term. This turned out to be one of the key revenue sources for Chinese governments at various levels over the subsequent years. The minor amendment of Article 10 also led to a boom in the real estate market for the next 20 years once this major legal obstacle had been removed. 
 

In line with the amendment to the Constitution in 1988, The Interim Regulation of China on Allocated Land Use Rights and Granted Land Use Rights of State-owned Urban Land was issued by the State Council in 1990, together with The Urban Real Estate Law in 1994 which authorised local governments to grant long-term land-use rights to land users over state-owned land, but not over collective land. This sparked off two-decades of real estate growth at a neck-breaking pace.
 

Land use rights over agricultural collective land is slightly more complex since neither the collective itself nor the government may grant land use rights on this type of land to developers. Agricultural collective land needs to be requisitioned by the government and then converted into state-owned land before the government can grant land use rights on it. This ensures that the government has the final say on the use and transfer of agricultural land for any industrial and commercial development purposes.
 

In accordance with the Urban Real Estate Law, for real estate developers who seek to conduct construction of infrastructures and buildings on State-owned land, they have to first obtain land use rights. There are two kinds of land use rights– Allocated and Granted.

Allocated land use rights are obtained through administrative approval by the government without the payment of a land-grant fee for an indefinite period (usually to state-owned, State-run or non-profit entities). Such land use rights lack security of tenure and marketability and are subject to the risk of being taken back by the government at any time without any compensation. Furthermore, allocated land use rights cannot be pledged, mortgaged, leased, or transferred by the user.
 

Granted land use rights are acquired from the State by paying a land-grant fee to the government. Granted land use rights can be pledged, mortgaged, leased, and transferred within the term of the grant. Land is granted for a fixed term. The government may transfer land use rights to residential property for a term of up to seventy years. For commercial property, the maximum term is forty years. Industrial and other types of land use rights may be granted for a term of no more than fifty years. Granted land must be used for the specific purpose for which it was granted.
 

In the case of allocated land use rights, the land user may acquire the land at virtually no cost, under certain circumstances, or paying only annual land use fees. As mentioned-above, the tenure of allocated land use rights could be terminated by the government at any time which creates much uncertainty for the land user and its business partners. 
 

In accordance with Urban Real Estate Law, allocated land use rights may be offered to the following organisations and purposes upon approval by the appropriate governments:
 

• Government agencies and the military;

• Urban infrastructure and public interests;

• Energy, traffic and water irrigation which are approved by the state and

• Other purposes which are allowed by law and administrative regulations

The Ministry of Land and Resources (the “MLR”) issued a Catalogue on Allocated Land in October 2001 specifying the specific purposes under which allocated land use rights can be acquired. 

To obtain granted land-use rights, the land user must sign a land-grant contract with the local level of MLR by means of an open and competitive mechanism which are by bidding, auction or a listing process and must pay a land-grant fee up front. The successful grantee must use the land for the purpose specified in the land-grant contract. Prior to the expiration of the term, the government may reclaim the land for reasons of public interest under which circumstance the government must compensate the grantee for the value of the unexpired term. 
 

Prior to July 2002, the process of granting land-use rights was largely conducted in a private and opaque manner usually by bilateral agreements between local land authorities and grantees rather than by competitive procedure such as auction or a tendering process. The lack of transparency gave rise to corruption as well as heavy losses to the state, as many private negotiations resulted in land prices far below market value. 

On July 1 2002, the Provisions on Grant of State-owned Leaseholds by Invitation for Bids, Auction and Listing (the “BALP”) issued by MLR issued came into effect that prohibits land use rights grants by private agreement for commercial purposes. According to the BALP, land-use rights for commercial land must be granted by means of auction, a tendering process or listing process. The listing process refers to an arrangement of publicly inviting potential purchasers to participate in the bidding  under which the land is listed at a land exchange center and interested parties are given a certain period of time to submit bids.