A few days ago, Beijing successfully landed the “double first single” real estate trust property registration. The immovable property trust registration system solves the problem of independence of trust property and trust company property, and takes a big step to build China's trust registration system.
"Institutional barriers to the incorporation of immovable property into trusts are gradually being removed. Following the release of the “Notice on Doing a Good Job in Registering Real Estate Trust Property (for Trial Implementation)” in December 2024, Beijing has successfully landed the “double first single” real estate trust property registration, which means that the real estate trust is moving from system design to practice deepening.
The industry generally believes that the real estate as trust property direct registration, so that the ownership of more clearly defined norms, help to achieve “risk isolation”. At the same time, the principal can avoid the establishment of special purpose vehicle (SPV) and other complex procedures, significantly reducing the threshold for the establishment of real estate trust.
Although the real estate trust registration system has “broken the ice”, the SPV model of real estate trust still has advantages. Experts believe that for high-value commercial properties that are involved in leasing, renovation or capital appreciation, the SPV structure is still the preferred option for tax planning and affairs management.
Exploration of Real Estate Trust Registration System Sees New Progress
Beijing has made further progress in the exploration of real estate trust registration system.
After the Beijing Financial Supervisory Bureau and the Beijing Municipal Commission of Planning and Natural Resources issued the “Circular on the Registration of Real Estate Trust Property (Trial)” (the ‘Circular’) on December 11 last year, Beijing has successfully achieved the “double first single” registration of real estate trust property under its jurisdiction.
These two trust projects were registered for the first time by CITIC Taikang Trust and Foreign Trade Trust in the real estate registration centers of Tongzhou and Changping Districts, respectively, under the jurisdiction of Beijing. CITIC Taikang Trust set up a real estate trust for an elderly person and his autistic child in Beijing to help the elderly realize the purpose of “old age care” and “guarding the children after death”, and to promote the trust as a carrier of affection and responsibility; Foreign Trade Trust set up a customized real estate trust for a middle-aged citizen in Beijing. A middle-aged citizen in Beijing was provided with a specialized and customized real estate trust, in which logistics and storage facilities were registered as trust property, and 50% of the trust income was directed to charitable donations according to his wishes, thus constructing a four-in-one trust service model of “real estate + charity + pension + inheritance” in the new era.
“The third party can know the status of the property at a glance through the registration information, and even if faced with debt disputes in the future, the trust property can be independent of the assets of all parties in accordance with the law, truly realizing ‘risk isolation’.” Wei Mengmeng, Party Secretary and General Manager of Foreign Trade Trust, introduced that this single real estate trust project of Foreign Trade Trust is “JI Quantity 10”, which completes the registration of the trust property directly in the Real Estate Registration Center and clearly marks “real estate trust property” and “product name” in the notation column of the real estate right certificate. "and the name of the product.
According to the Notice, the process of registration of real estate trust property is divided into three parts: pre-registration of trust products, signing of trust documents and registration of trust property. In the section of handling trust property registration, the principal and the trust organization jointly submit the registration application to the real estate registry, and the real estate registry handles the real estate transfer registration based on the deed tax completion (or tax exemption) voucher, the trust document, and the supporting documents issued by China Trust Registration Company Limited, and marks "real estate trust property, trust Product name: x x x".
"From the current point of view, the promotion of real estate trust, through the registration of trust property, solves the problem of the independence of the trust property from the property of the trust company. Without the registration of trust property, the trust company's own property and the trust property are easily mixed, resulting in the independence of the trust property not being realized." Teng Jie, partner lawyer of Beijing King&Capital Law Firm and secretary general of the Kyoto Family Trust Legal Affairs Center, said in a written reply to an interview with the reporter of the Daily Economic News.
It is reported that the real estate trust system has previously been piloted in Hangzhou, Shanghai and other places. Teng Jie pointed out that the definition of the “Notice” on the registration of real estate trust property as well as the registration method is more similar to the practice of Hangzhou, but its application is no longer limited to the field of charitable trusts, solidly taking a big step to build China's trust registration system.
Will the SPV model be eliminated after the trial implementation of the registration system?
According to the reporter's understanding, previously, the establishment of real estate trust through the SPV (Special Purpose Vehicle) model was one of the mainstream choices.
Yang Xiang, chief architect of Zhonglun Boring's Strategic Philanthropy and Wealth Inheritance Team and researcher at Tsinghua University Law School's Center for Financial and Legal Studies, mentioned in his op-ed “Real Estate Trusts May Start ‘Universal’ Mode” that the SPV mode is a mode of indirectly holding real estate in a trust, i.e., a trust is set up by the client with funds, and then a new trust is established under the funds trust. The SPV model is a model of indirectly holding real estate in trust, i.e., the trust is first established by the principal with funds, and then a new SPV is set up under the trust, which may be in the form of a limited company or a limited partnership, with the SPV acting as the main body of the real estate holding.
The attractiveness of the SPV model has tended to diminish as the real estate trust registration system has begun to be piloted in some regions. Because in the pilot areas, the principal can directly transfer the property to the name of the trust company and complete the registration of the real estate trust property (hereinafter referred to as the “direct registration model”), thus eliminating the complex process of setting up an SPV.
However, industry insiders believe that in the short term, the SPV model will not be eliminated, because it still has the unique advantages that the direct registration model does not have.
Teng Jie told reporters that even with the implementation of the real estate trust property registration system, the advantages of going through the SPV model are still very obvious as long as the relevant tax policies have not been adjusted. "If the SPV holds real estate through the trust as a limited partner, the principal will transfer the real estate to the SPV, there is no difference between the tax and the direct transfer to the trust company, and the principal as a general partner also has the right to control, and at the same time, due to the use of the SPV, in the risk arising from the real estate itself, such as real estate leasing due to the quality of the property problems of the leaser to the detriment of the leaser, Real estate fire and other risks can be isolated from the trust company, avoiding the trust company to bear excessive liability. In addition, under the SPV model, the principal can also control the property more freely by acting as a general partner."
It is reported that the real estate trust system has previously been piloted in Hangzhou, Shanghai and other places. Teng Jie pointed out that the Notice's definition of registration of real estate trust property and the registration method are more similar to Hangzhou's practice, but its application is no longer limited to the field of charitable trusts, solidly taking a big step in building China's trust registration system.
Wang Xu, director of the Global Asset Security Law Center of Dacheng Law Offices and a graduate student of international trust law under state full scholarship, said in a WeChat interview with the reporter of the Daily Economic News that from a practical point of view, the SPV model and the direct registration model each have their own adaptation scenarios, which need to be combined with the nature of the assets, the cost of taxation and the demand for management to make a comprehensive judgment.
In his opinion, under the direct registration mode, the principal can directly transfer the property to the trust company's name, eliminating the process of setting up an SPV, shortening the trust establishment cycle, alleviating the complexity of the structure and reducing costs; at the same time, the direct registration of the property as a trust property enhances the publicity of ownership, and the legal risks are lower in the operation of debt isolation and subsequent mortgages and transfers. “However, this model also has certain limitations, and is not suitable for holding a large number of commercial properties, and the scope of the pilot is limited, and currently only applies to trusts and properties within the jurisdiction of Beijing, and other regions still need to rely on the SPV structure.”
Attorney Wang Xu emphasized that the advantages of the SPV structure model in commercial property management remain prominent. "The SPV model of a property family trust usually includes two types of structures: partnership model and ‘partnership + limited liability company’ two-tier structure. In the corresponding structure, the principal can flexibly satisfy the practical needs of invoicing, contract signing, depreciation and tax offsetting through the SPV, which is particularly suitable for those who need to centralize management of It is particularly suitable for the scenario of centralized management of multiple properties or large-scale commercial properties. For example, the rental income of commercial properties can be reduced through VAT and income tax optimization under the SPV framework. In addition, for principals in non-pilot regions, or assets that may involve equity transactions or cross-border structures in the future, the SPV model has more room for expansion at the financing and capital operation level due to its corporate equity attributes."
“From the perspective of selection logic, self-owned housing property without commercial operation needs, the use of direct registration mode is more efficient and convenient; and involves leasing, remodeling or capital appreciation of high-value commercial property, the SPV structure is still the preferred choice in tax planning and affairs management.” Mr. Wang Xu further said that under the current policy environment, the two modes will co-exist for a long time: the convenience of the registration system is conducive to the popularization of standardized services, allowing more residents to enjoy the functional advantages of property trusts, while the SPV continues to support the demand for complex asset management and is suitable for holding high-value commercial properties. It is recommended that principals dynamically adjust the program according to asset size, geographic policy and long-term planning, for example, pilot regions can prioritize the assessment of tax costs, non-pilot regions still need to use SPV as a compliance path, and cross-border or high-net-worth asset portfolios need to reserve structural flexibility in advance.
He admitted to the reporter that if the registration system is promoted to the whole country in the future, it may further cover simple business scenarios, but when it comes to deeper needs such as equity trading and asset securitization, the core function of SPV is still irreplaceable. “Overall, the system innovation provides the market with diversified tools, but ‘one size does not fit all’ is not feasible, and precise matching of objectives is the key to realizing asset safety and value-added.”
Real estate trust gradually “fly into the common people's home”
In the view of industry insiders, the real estate trust registration policy for “real estate loaded into the trust” provides a systematic guarantee, which allows the establishment of real estate trust to bypass the establishment of SPV and other complex structures, reducing the threshold for the establishment of real estate trust is no longer the most difficult task, so that it is no longer the most important task. Threshold, so that real estate trust is no longer an ordinary family difficult to reach “luxury goods”.
In China, real estate has become the most important asset of many ordinary families, and its inheritance is naturally a matter of great concern. If real estate trust can “fly into the common people's home”, this will undoubtedly be one of the good ways to solve this problem.
However, in the eyes of industry experts, real estate trusts need to be paired with tax innovations if they are to be truly popularized among ordinary families.
There are also views that the specific details of real estate trust registration, such as real estate directly into the trust of the specific process, requirements and standards, etc., still need to be further improved and clear.
Xie Peilin, a lawyer at Shanghai Cheng Yixin Law Firm, mentioned in an op-ed that the qualification of urban residential holders is also one of the issues that needs to be addressed. “Currently, many core cities in China only allow individuals who meet the qualifications for home purchase to hold local residences, which results in local residences not being able to be held by trusts, rendering the loading of local residences into real estate trusts an unfinished matter.”
It is worth noting that the above mentioned Circular only stipulates that the deed tax completion (or tax exemption) certificate is an important condition for the registration of the trust property, and does not mention the relevant taxation details.
Gao Huiyun, senior tax law consultant of Beijing King&Capital Law Firm and executive director of King&Capital Family Trust Legal Affairs Center, told the Daily Economic News that the process of establishing, holding and terminating real estate trusts involves tax disputes. For example, in the establishment and termination stages of the trust, the act of registering changes in real estate is not regarded as a transaction and does not involve more tax if it refers to the “non-transaction transfer” system.
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