"The regulations will protect apartment owners who haven't received the official property-rights certificates when the developer goes into bankruptcy." said Li Guoguang, vice president of the Supreme People's Court.

Under the regulations, which become effective on September 1, banks or any other creditor of a real estate developer will not be allowed to take control of the developer's project when the developer goes into bankruptcy.

Under China's pre-sales system for real estate, buyers sign a contract before construction is completed, but only get property rights when an official certificate is given after the apartment is completed.

That allowed banks and creditors to take over the property if developers fail to finish the project or run into other problems.

More than 300 residents of the Jiafuli Apartments in Putuo District discovered how little protection they had shortly after buying their new homes and moving into the building in 1999.

The building's developer declared bankruptcy in late 2000, leading its banker to seize the building.

It was at this point that homeowners discovered that the building had been used by the developer as collateral for a loan. Homeowners didn't legally own their apartments, since they didn't get the official property-rights certificates.

Banks and other creditors under the old system can auction off seized properties, and have priority in getting the proceeds to cover loans.

(Shanghai Daily August 5, 2002)