GUIDE TO BUYING REAL ESTATE IN CHINA




By Dan Hua - China Expert

Happy Holidays!

The Chinese real estate market is in its infancy having been established in the 1990s and through research has been booming these two years. So last year my lovely wife and I got our China Visas and traveled to China to evaluate real estate investment opportunties in person and found the official real estate buying process in China is poorly documented and property investors can find it quite a struggle to get a straight answer on how the purchase process will proceed.

We evaluated multi-unit investment properties in Beijing, Shanghai, Chu-Chow, Canton and Hong Kong. We also attended trade shows for new apartment buildings and for our Bliss Living celebrity baby gift business. Below are our real estate purchasing tips.

You can only sign a 70 year renewable lease in China at this time, you can not purchase land. If you want to invest in China, you need to make sure you understand their local laws. This began in the early 1990s and nobody knows how the renewal process will work since the earliest real estate lease to reach expiration will be in 2045.

The key to a successful real estate investment in China is to secure local legal representation before beginning the hunt for property to suit specific investment requirements, and also to secure the services of a licensed real estate agent.

In China there are many seemingly conflicting laws governing the resale of investment property, land, and entitlements. There is no such thing as an REO in China like Real Estated Owned ("REO") properties in the U.S. If you do not know what an REO is check out our REO guide and REO tips.

as well as the development of land and property and these laws and regulations cover everything from the potential environmental impact of the sale to restricting the sale to Chinese citizens only. 

Therefore without local representation a real estate investor who wants do business in China could quickly become entangled in confusion and fail to find lucrative investment properties.

The legal system in China is a combination of continental law and common plus the laws governing the resale of immovable property to foreign individuals or corporations come from both central government and the local authorities, therefore it is particularly tricky for an individual investor to get a handle on all the complexities of their specific rights which is why independent legal representation is essential.

Depending on the city or area in China that an investor is interested in for his property purchase there may be specific restrictions on the amount and type of property available to be purchased.  The Chinese government created a successful real estate boom when they allowed for the freehold ownership of property in China back in the 1990s through the 70 year leases. R

Recently, the Chinese government have implemented restrictions such as imposing a special property tax for quick resales to curtail growth, especially in the major Chinese cities of Beijing, Shanghai, and Guangzhou. This tax applies to those who sell within two years of ownership.

The Chinese Governement has done this in a bid to slow the explosive growth of 25%+ appreciation rate and to promote sustainability within the real estate market, but it does mean that rules keep changing and an investor should be aware of developments in China before committing to a particular city or region in the event the local, regional, or national Chinese government changes is rules and reduces the return on investment.

It is a good idea to find a real estate lawyer in China due to the Chinse real estate's young age and its rapid growth. Chinese real estate lawyers often charge rates much lower than their U.S. counterparts (on average 75% less).

In addition to a real estate agent and lawyer, real estate investors should read our guide to doing business in China, as well as our information on China Visas, travel to China, Chinese Government, and Chinese Trade Shows. We also recommend a couple books in our Suggested Readings and references section.

A Chinese real estate agent who specializes in the town, city or region an investor is specifically interested in will have all the local knowledge about which projects are available for sale to overseas investors.  This will mean that an investor will save himself valuable time looking at properties or land unavailable for legal sale and will be given particulars of suitable and legally available properties immediately.

A good realtor in China can guide the foreign investor through every step of the purchase process and here’s a brief breakdown of the buying process for real estate investors in China - but note that your particular buying experience could differ from this guide and you should speak to your lawyer and estate agent about what to personally expect from the buying process.

Foreign real estate investors can buy real estate in China if a power of attorney is signed to legally authorize a Chinese agent to act on their behalf.  This is typically done by granting power of attorney to a Chinese lawyer.  Therefore, any of the following steps that require action to be taken by the investor can actually be taken by the investor’s lawyer providing he has been granted power of attorney.

A non-Chinese citizen real estate buyer will need to have a notarized Chinese name in order to buy a property.  The buyer can visit a local Chinese notary office or at the Chinese embassy to obtain the name and have it notarized.

A buyer should factor in the following additional taxes:

* 3% stamp duty
* 2% maintenance taxation
* 1.5% contract tax
* 0.1% stamp duty for a resale property

Once a real estate investor has located a good investment property, the real estate agent will enter into negotiations on the purchaser’s behalf with the seller or the seller's agent   Once a purchase price has been agreed upon the "Customer Confirmation Agreement" is signed by all parties and a deposit is paid which is usually held by the agent until all conditions for the sale have been met. Keep in mind deposits for real estate in China are a lot harder to get back if the buyer backs out than in the U.S.

The next stage is to visit the Realty Transaction Department or half the agent visit to begin the escrow process. A Property Purchasing Registration Form and a Property Selling Registration Form need to be to be completed and filed with the Property Ownership Certificate and then the Realty Transaction Department which provides a date for the official Realty Transfer Notice to be given.

When the designated date arrives all parties or their representatives will visit the Realty Transaction Department to finalize the real estate transaction: sign the final documents, funds change hands, property taxes are due as are legal and agency fees. The keys are given to the real estate investor once the property document has been signed.

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