Private property gains equality in law

Amidst the frenzy of the heated real estate market, the Chinese Property Rights Law came into effect at the beginning of the month.

While much of the law purports to consolidate and reinforce property rights-related provisions that already exist in various mainland laws and regulations, the significance of the Property Rights Law in furthering the development of the country's market-oriented economy should be properly recognised.

On the political front, one of the greatest achievements of the law is that it recognises the principle of equal protection of private property rights as weighed against state-owned and collectively owned property rights. Given the country's history of extreme state dominance, the codification of this principle is no small victory for the new generation of private property rights holders.

On the practical front, the Property Rights Law, in line with existing laws and regulations, reinforces the market-tested principle that while the state owns urban land, private individuals and businesses may obtain granted land use rights.

Some of the highlights of the law related to real property include: the requirement that property rights (including ownership, use/possession, and security rights) in real estate must be registered; the introduction of a nationwide registration system for property rights in real property (to replace the fragmented and user-unfriendly system currently in place); the rights of the buyer and the seller of real property to register a notice of the proposed sale to prevent competing transactions and facilitate the enforcement of exclusivity of the proposed sale; and the automatic extension of granted land use rights for residential properties.

Of equal significance is the Property Rights Law's attempt to reform the legal framework for protecting creditors' rights under the Chinese Security Law. In the event of any discrepancy between the Property Rights Law and the Security Law, the Property Rights Law should prevail. Notably, the Property Rights Law has expanded the scope of mortgaged properties to 'all properties not prohibited from being mortgaged by law or regulation'. For the first time in the mainland, the Property Rights Law has introduced a 'floating charge' concept to permit the mortgage of not just properties already in existence but also properties to be made available in the future.

While the Property Rights Law, like any other statute, contains gaps that await further clarification by future laws, government implementing regulations and Supreme Court interpretations, it is a well debated statute and should go a long way in laying the foundation for wealth creation in the country.

After the initial success of the mainland's economic reform, the promulgation of the Property Rights Law is indeed a milestone event and the country's increasingly well-informed legislature fully understands its implication not just in China but also potentially in other developing economies, both in the region and beyond.

Li Qiang is a Shanghai-based partner of O'Melveny & Myers