Guide of Purchasing Real Property in China

Updated:May 10,2012 15:20 PM

Many foreigners living in China for extended periods decide after some years that they would like to settle their roots here. One of the common ways of doing this is by transitioning from renting an apartment to taking the plunge and buying a property. Others see purchasing real estate less as an act pertaining to their wishes to become long term residents of China and more as an investment in an a fast growing economic environment in which, unlike other countries, the housing market is currently generally seen to be going only one way–up.
Indeed, relatively low prices and seeming promises of good returns on investments make China a very attractive market for investing in property. Having said this, there are many pitfalls which stand in the way of the happy home owner. In this article we take a look at the necessary processes, as well as some of the less pleasant surprises which are encountered by foreigners when purchasing property in the Middle Kingdom, along with a few tips for dealing with them.

Time waits for no man

One of the striking differences between real estate in China and westernized nations is its temporal features. It is worth noting that in China private ownership of land is not an option. The land for each property is only ‘rented’ from the government. Effectively this means the tenant owns the space between the walls of the property and not the actually land that it is built on. Attached to this concept is the fact that all properties are bought on a 70-year lease. Since the PRC as we know it has only been in existence 60 years, as has this law, it’s still unclear what the implications of this policy will be. Some believe that private ownership of land may be in the cards in the future.

Another thing to consider about timing and buying property in China is that the property market, in many respects, moves faster than in Western countries. Because Chinese often pay in cash, the process is generally faster than in countries where the majority of properties are purchased with loans and mortgages. Combined with the fact that there are fewer older properties (due to the fact that many buildings are demolished after 20 years thanks to low quality construction) this shortens the lengthy property chains which slow the market in other countries. The sped up market makes the often cutthroat field of real estate even more competitive in China, more on this later.

A house is not a home

Many people who buy property in China do so with their Chinese spouse. This is a good practice since buying as a foreigner is likely to increase costs and misunderstandings. It’s worth taking into account that owning property does not guarantee anybody the right to residence in China. Spousal visas are also just that – they do not grant permanent residence in China.

Should China’s visa policy change drastically due to relations with other countries, those owning property in China may find themselves in quite a predicament. Also worthy of consideration is the financial status of foreigners in China. In general it is much more difficult for foreigners to get loans in China, although it is not impossible; an individual must jump through a number of hoops to get a home buyer loan. Loans are generally only available to people on X (student) and Z (working) visas. There are also limitations on the amount of foreign currency that can be exchanged into RMB; current figures suggest 50,000 USD per individual annually.

The process of purchasing a property

If these limitations haven’t squelched your hunger for a piece of the China property pie here is a brief, simplified explanation of the property buying process. As with all important legal processes, you’ll want to double check everything with a lawyer and other knowledgeable parties as all policies and practices are subject to change.

Make an offer: Once you have found the property that you wish to purchase you need to submit an offer. This offer normally comes in the form of a letter which outlines the offered price, payment schedule and any conditions attached to the purchase. After the offer has been accepted a 1% deposit is normally paid. This deposit may become a contentious issue should the sale of the property fall through for whatever reason – buyers cannot guarantee the retention of this money even if they are not responsible for the break down of the process.

Make financial arrangements: As noted before, mortgages and loans are more difficult for foreigners in China to come by; however, they are not impossible to obtain.

Checks: The arrangement must be examined and approved by the real-estate agent or by an independent legal body. The go ahead of the Public Security Bureau may also be required. It is worth noting that Chinese government requires that taxes are paid on the income received from selling a property; without taxation a sale may not continue.

Exchange of contracts: A notarized contract for foreign buyers is received and then an initial down payment of 30% is made to the seller.

Deed title application: With mortgages complete and taxes in order the deeds are ready to be transferred to the buyer. This has to be authorised by the appropriate governmental offices. When everything is in order and the ownership certificate has been issued it is up to the buyer to pay the remaining 70% of the purchase.

China property buying tips

Cut out the middle man: Many real-estate agents in China see foreigners as easy prey. One way to cut out middle men is to buy a brand new property and deal with the property management, or Wuye, directly. Although legal representation is still required, this method cuts out the agent’s fees. The downside of this method is that it limits your property search to brand new properties; for many this may not be an issue but for some it undoubtedly will be.

Take a friend: If you are not buying a property with a Chinese partner it is well worth enlisting the help of a trusted Chinese friend. Chinese people understand the intricacies of the bargaining process and are likely to have the foresight to see potential pitfalls in an arrangement. Of course the buying process is lengthy so it is quite a large ‘ask’ to expect a friend to be present all the way through the process.

Check out the companies involved: Property management companies and the services they offer vary greatly. It is not uncommon for a company to be disorganised, corner cutting and seriously lacking in customer service skills. It is equally not uncommon for these shortcomings to be well hidden behind a glossy corporate veneer. To deal with this it is best to investigate the company thoroughly by means of a number of visits, and perhaps speak to other people in the complex about their level of satisfaction with the company.

Be aware of your surroundings: Aspects of the property and its location are also worth taking into consideration. It pays to think about what is currently in the environs of the complex and what could possibly be built there. Factories and steel mills are local ‘features’ that can seriously impinge on the quality of life for residents. Also, that vacant plot of land your balcony is looking onto maybe not always be a vacant plot of land. To get satisfactory results when house hunting it is always best to do your homework, and then some.