Hidden Dangers Behind Nominee Property Ownership in China

In China’s real estate market, nominee property ownership—commonly referred to as “purchasing a property in someone else’s name”—is a frequently observed but legally precarious arrangement. This typically arises when the actual purchaser (the “beneficial owner”) chooses not to register the property in their own name and instead uses another individual (the “nominee owner”) as the official titleholder. Although such arrangements may appear convenient or necessary in certain contexts, they often conflict with China’s real estate registration system, which is built upon the principles of publicity and public faith. As a result, nominee ownership structures carry substantial legal risks.

In practice, many families and investors enter into such arrangements for a variety of reasons—ranging from policy restrictions to credit constraints or personal preferences. However, the majority of clients we have advised significantly underestimate the legal uncertainties inherent in nominee ownership. Most rely on the trustworthiness of a close friend or family member to act as the registered owner. But is trust alone sufficient to protect one’s interests in a legally binding system that emphasizes registered title over actual contribution?

This article examines the legal nature and risks of nominee property arrangements in China, from the standpoint of the beneficial owner, and offers practical recommendations to reduce exposure to disputes or loss.

Validity of Nominee Agreements Under Chinese Law
A typical nominee transaction is structured as follows: the nominee signs the sale and purchase agreement with the seller and is listed on the title deed; meanwhile, the purchase funds are entirely paid by the beneficial owner. In some cases, the loan application is also made in the nominee’s name. The resulting nominee agreement between the parties may be written or oral and often lacks formal documentation.
The legal validity of such arrangements depends heavily on the nature of the property and the intent behind the transaction.

For ordinary commercial housing, courts in China have generally upheld the validity of nominee agreements, provided they are not used to circumvent mandatory legal provisions. In such cases, the nominee agreement is seen as an expression of private autonomy between parties. The beneficial owner may, under this agreement, seek to enforce property transfer at a later stage, subject to evidentiary support.

For government-subsidized or policy-restricted housing—such as affordable housing, welfare housing, or homes with ownership restrictions—the legal situation becomes more complex. Although Chinese law does not explicitly prohibit nominee arrangements for such properties, some courts have ruled these agreements invalid on the grounds that they contravene public policy or administrative regulations. Other courts have taken a more liberal approach, recognizing such agreements if the transaction occurs after the restriction period expires or if no explicit legal violation is found. Due to this inconsistency, the legal risk in these cases remains high.

Where the nominee arrangement is used to circumvent local restrictions on property ownership or financing (e.g., purchase limits or loan eligibility), the risks become even more pronounced. China's real estate control policies are mostly implemented through local administrative regulations, not national laws. Although these do not constitute “mandatory provisions of law” in a strict sense, the Supreme People's Court, in its influential 2019 Judicial Conference Summary (the “Nine-Minute Summary”), held that violating such policies may be deemed a breach of public order and good morals, rendering the contract invalid. While some legal scholars question this interpretation, courts have increasingly cited macroeconomic policy enforcement as grounds to deny enforcement of nominee agreements in such contexts.

In short, even when a nominee agreement is held valid, the beneficial owner’s rights are contractual in nature, not proprietary. This distinction is critical: the beneficial owner cannot directly assert ownership of the property but can only request the nominee to assist with title transfer. Moreover, because the nominee is the legal titleholder, any disposition (such as sale, mortgage, or lease) made by the nominee is legally effective against third parties.

Legal Risks Inherent in Nominee Ownership
While nominee arrangements may initially appear straightforward, they often give rise to deep structural risks—many of which only become apparent in litigation. The most prominent and recurring issue is the moral hazard of the nominee. In most cases, nominee relationships are established between relatives or friends without written contracts. Once personal relationships sour or financial interests diverge, the nominee may deny the existence of any underlying trust. In the absence of robust documentary evidence, courts are often reluctant to recognize beneficial ownership claims.

Beyond personal dynamics, nominee ownership creates significant exposure in dealings with third parties. Because the nominee is the registered owner, any transaction they undertake—whether authorized or not—is presumed lawful. If a nominee sells or mortgages the property without the beneficial owner's consent, and the third party is deemed to have acted in good faith, the transfer is typically upheld. The beneficial owner’s recourse is limited to a claim for damages against the nominee, which may be difficult to enforce if the nominee is insolvent or uncooperative.

The nominee’s personal circumstances can also endanger the beneficial owner's interest. In the event of divorce, the property may be treated as marital property and divided accordingly, unless the beneficial owner can establish and prove their beneficial interest. Upon the nominee’s death, the property becomes part of their estate, subject to inheritance by their legal heirs. Without clear and persuasive documentation, the beneficial owner may face serious hurdles in asserting their claim.

Moreover, if the nominee becomes subject to debt enforcement or litigation, the property may be seized or auctioned by the courts. China’s enforcement regime presumes that the registered owner is the lawful owner, and courts routinely deny objections filed by unregistered beneficial owners—particularly where no formal agreement exists. The situation becomes even more difficult when the nominee is investigated for criminal activity, as the property may be frozen or confiscated as illicit assets.

Risk Mitigation Strategies
Given the magnitude of the risks associated with nominee ownership, beneficial owners should take comprehensive measures to protect their interests. Legal planning should begin before the property is purchased and continue through the entire ownership cycle.

The first and most critical step is to enter into a written nominee agreement that clearly outlines the rights and obligations of both parties. This agreement should include provisions on funding sources, title transfer conditions, use of the property, liability for taxes and maintenance, and the process for dispute resolution. Where possible, the nominee’s spouse and potential heirs should also acknowledge the agreement to reduce future conflicts.

Second, the beneficial owner should maintain factual control over the property. This includes living in the property or leasing it directly, paying for utilities and property fees, and maintaining all relevant financial and administrative records. These records serve as critical evidence of beneficial ownership should a dispute arise.
Additional protective mechanisms may include registering a mortgage in favor of the beneficial owner, thereby restricting the nominee’s ability to unilaterally dispose of the property. In some cases, a trust arrangement or nominee holding declaration may also be considered, although enforcement may still face limitations under China’s current real estate system.

Finally, the optimal solution—if feasible—is to complete title transfer to the beneficial owner at the earliest possible opportunity. Once policy or personal conditions permit, formal registration should be prioritized to eliminate the underlying conflict between legal title and beneficial ownership.

Why Legal Planning Matters More Than Personal Trust
While nominee ownership remains a widespread workaround in China’s real estate market, it is laden with uncertainty and legal fragility. The structure is often built on informal trust while bypassing the protections of formal legal ownership. As courts increasingly favor registered titleholders and regulatory compliance, the legal enforceability of such private arrangements becomes increasingly tenuous.

Trust, while essential in personal relationships, cannot replace clear legal documentation and enforceable rights. Beneficial owners must be proactive—not only in documenting nominee arrangements but also in anticipating possible disputes and regulatory challenges. Legal planning should not be viewed as optional or secondary, but as a critical safeguard to protect high-value assets like real estate.

Engaging legal counsel early and structuring the nominee relationship with foresight and formality is essential. In a legal environment where ownership is defined by what is registered—not what is privately agreed—foresight, documentation, and precision are the keys to minimizing risk and securing long-term interests.

Jian Huang jhuang@ipopang.com is Counsel at IPO Pang Shenjun 

About IPO Pang Shenjun Law Firm:

IPO Pang Shenjun is Alliott Global Alliance’s representative law firm in Shanghai Province, China and has a strong reputation for its outstanding service delivery of helping many companies across a wide spectrum of industries to establish and grow their operations. Established in the early 1990s, the firm now has associates throughout China and affiliate partners in over100 countries. Read more.