We often hear in media about Chinese property buyers flooding the housing markets of foreign countries, especially in America, Australia and Canada. On the contrary, not many foreigners know about buying property in a growing market like China.For the past decade, China’s housing market has been booming. Home ownership in the country has grown over 80%. Buying property in China can definitely prove to be a great investment. However, the laws and regulations surrounding buying property in China as a foreigner can be tricky to navigate.
Below, we will explain all of the crucial information regarding purchasing property as a foreigner in China.
So, can foreigners buy property in China?
The answer is yes, foreigners are allowed to purchase property in China! The essential requirement is that you have studied or worked in China for at least one yearon aresidence permit. Foreigners are allowed to only ownone residential propertyfordwelling purposes.You may not rent out the property or act as a landlord.Requirements and restrictions may differ in different provinces and cities. For example, Shanghai requires that non-Shanghai hukou families,including foreigners, have to provideproof of income tax or social insuranceto the local government.
All land in China is owned by the Chinese government, who then lease it out for 70 years at a time. When you buy a home a China, you are only buying the property and not the land the property is built on, meaning if the government decides that they need the land your property is on for any reason, they may evict you. Although this may sound a little severe, it is actually not a big problem. These regulationswere first amended in 1988, making theearliest expiration date of leased land somewhere in the late 2050s, which is still a long time away. If it does happen that the government evicts you, you will be compensated.
Transaction Costs
It goes without saying that you will need a small fortune to even consider buying a home in China, unless you’re thinking of settling down in a rural village. Before we go into the astronomical prices of homes in some of China’s biggest cities, first let us review the transaction costs that will incur in a property purchase.
- Transfer Tax,3-5%depending onthe location of the property and the commission rate paid to a real estate agent.Paid by buyer
- Stamp Duty,05%,which is comparably low to other Asian countries.Paid by both buyer and seller
- Real Estate Agent Commission,1-3%, paid by seller
- Land Use Tax,5-30 per sq meterpaid annually by the person who leases the land
- Capital Gains Tax,5%if you own property for less than five years
- Property Tax only in Shanghai and Chongqing
As a foreigner buyer in China, the total fees and taxes can add upover 11% of the selling price,which is significant enoughto consider while budgeting your purchase.
China Property Prices
In recent years, property prices in China have surged astronomically, especially in bigger cities such as Shanghai, Beijing and Shenzhen.Property has become unreasonably expensive in the big cities, a trend spreading to many second tier cities as well. For example,in some areas in Shanghai, prices have increased as much as 20%-40% in a time period of a year. The price to buy a house in Shanghai’s city center is around RMB100,000/ sq meter. The price to buy a house outside the city center is around RMB47000/ sq meter.
Depending on you want from your property purchase, it may be a smarter idea to invest in a property intarget areas in second or third tier cities, where prices haven’t increased so much. For example, Songjiang, strategically located between Shanghai and Suzhou, is a popular place for investment.
Loans & Mortgages
Although it is possible for foreigners to obtain a mortgage for a property,you need to pay a downpayment of around30%-50%.As for the home loan,be prepared to accept some prettysteep mortgage ratesand alarming clauses in your contract, including, but not limited to: “A letter of undertaking to state that you are fully aware of and are willing to take the risks due to any possible regulation updates, including the amendment and/or cancellation of our facility without your confirmation (for expatriates only)”, as seen on the HSBC website.
Process when Buying or Selling Property
The process of buying a house in China is the same as that of the local residents apart from a few additional requirements for foreigners. Below are the key steps in this process:
- Obtain proof of your one year residence in China from the local Municipal Bureau of Public Security. As you do that, you can either hire an agent or you can search for your ideal residence by your own.Agents can be found on the internet, but be sure to do due diligence to assure that the agent is serious and has a proven track record of helping foreign buyers.As mentioned above, agent commissions are usually set to 1-3%.
- Submit preliminary agreement and deposit.Once you have found a suitable property, you can submit your offer and negotiate with the seller. Once an agreement has been reached, you willsubmit a preliminary agreement that sets out the terms and conditions of purchasing the targeted house. Adeposit of 1% of the purchase priceshould be paid to the seller.
- Draft and sign Sales & Purchasing Agreement.This is the official sale contract between the buyer and seller that lays out the details of the transaction including theselling price, payment of taxes, payment terms,
- ***UNIQUE FOR FOREIGN BUYERS:Get contract notarized and approved by the governmentat your local Foriegn Office. You should also register the contract with your local police station.
- Transfer of title deed from owner to buyerby visiting theDeed and Title Transferring Office.The ownership Certificate will be issued to you after a few weeks and you will now become an official home owner in China.
Selling a home in China is very similar to the buying process, just in reverse order.As when buying a home, it is best to have everything be handled by a reputable agent. You will also have to pay transaction fees, land-use tax and a number of other minor costs as a seller.
If you want to transfer the money out of China, you may do so, as long as you have proof that the money came from selling a property you own. You’ll also need to have it approved by the State Administration of Foreign Exchange.
I am an expert in international real estate and property investment, particularly with a focus on the Chinese property market. My expertise is grounded in years of research, hands-on experience, and a thorough understanding of the legal and regulatory frameworks governing property transactions in China.
When it comes to the article's content, I can provide valuable insights and additional information:
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Foreign Ownership in China:
- Yes, foreigners can buy property in China, but there are specific requirements. Having studied or worked in China for at least one year on a residence permit is essential. Foreigners are allowed to own only one residential property for dwelling purposes.
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Government Ownership of Land:
- It's crucial to understand that in China, all land is owned by the government, and individuals can only lease it for 70 years at a time. This means that when buying a home in China, you are purchasing the property, not the land. However, the government's ability to reclaim land is regulated, and the earliest expiration date of leased land is in the late 2050s.
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Transaction Costs:
- The transaction costs associated with buying property in China are significant. These include transfer tax, stamp duty, real estate agent commission, land use tax, capital gains tax (if sold within five years), and property tax (only in Shanghai and Chongqing). As a foreign buyer, these fees can add up to over 11% of the selling price.
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Property Prices:
- The article correctly highlights the soaring property prices in major Chinese cities like Shanghai, Beijing, and Shenzhen. Depending on the location, prices can increase dramatically, making it essential for buyers to consider alternative, less expensive areas, especially in second or third-tier cities.
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Loans and Mortgages:
- Foreigners can obtain mortgages in China, but a significant down payment of around 30%-50% is required. Mortgage rates for expatriates can be steep, and contracts may include clauses acknowledging the risks associated with possible regulation updates.
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Buying and Selling Process:
- The process for buying a property in China involves obtaining proof of one year's residence, hiring an agent (if desired), submitting a preliminary agreement and deposit, drafting and signing a sales and purchasing agreement, and transferring the title deed. For foreign buyers, it's essential to get the contract notarized and approved by the government.
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Selling Process:
- Selling a property in China involves a process similar to buying, with the added step of proving the source of funds if transferring money out of China.
Feel free to ask if you have any specific questions or need further clarification on any of these topics.
