| Because
the Chinese real estate market is in its infancy having only
truly been established in the mid 1990s, the official real
estate buying process is relatively poorly documented and
property investors can find it quite a struggle to get a definitive
answer about how the purchase process will proceed.
The key to making a successful real estate
investment in China is to secure local legal representation
before even 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 immovable property and land 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 legal representation
a real estate investor in China could quickly and easily become
tangled in a web of confusion and fail to find suitable properties
legally available for sale and that meet specific investment
needs.
The legal system in China is a combination
of common law and continental legal systems and 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 specific city or area in
China that an investor is interested in for his property purchase
there may be certain restrictions placed on the amount and
type of property available to be purchased. The Chinese government
created a successful and strongly impacting property boom
when they allowed for the freehold ownership of property in
China back in the 1990s and as a result they have subsequently
been forced to tighten every aspect of their control surrounding
China’s property market.
They have done this in a bid to restrict fast
growth and to promote sustainability within the real estate
market, but it does mean that rules keep changing and an investor
should keep abreast of developments in China before committing
to a particular city or region incase a government’s
change of mind could reduce or restrict the potential profitability
of an investment.
An example of how the government’s tightening
of control on the real estate market has already negatively
impacted some property investors is clear when you realize
that it is no longer possible to flip properties purchased
off plan upon their completion and cash in on interim price
gains because of a new high rate capital gains tax that hits
those hard who resell properties within a couple of years
of ownership.
Because the real estate market in China is
so immature and yet so fast moving it’s worth finding
a lawyer specializing in real estate law as he will be more
aware of any pending law changes that could affect investments
made.
As well as finding a good lawyer an investor
should secure the services of a licensed real estate broker
or realtor in China. The development of laws relating to the
licensing of estate agents has been a little lax and the Chinese
authorities have received many complaints from local and foreign
property buyers who have fallen victim to bad practice, but
as the market matures so does the estate agency business and
this means it is now far easier to find a decent estate agent
than it was just three years ago.
An 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.
Most decent realtors in China guide the foreign
investor through every single aspect of the purchase process
and here’s a brief breakdown of the buying process for
real estate investors in China - but please 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.
Overseas investors hoping to buy real estate
in China can do so remotely if they legally authorize someone
in China to act on their behalf. This is usually done by granting
power of attorney to a local 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 property buyer will need to
have a notarized Chinese name in order to purchase. To get
the name and to have it notarized the buyer can either do
so locally in China at a notary’s office or at their
local Chinese embassy in their home country.
A buyer should factor in the following additional
taxation expenses: -
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
suitable property, the real estate agent will enter into negotiations
on the purchaser’s behalf with the vendor. 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.
The next stage is to visit the Realty Transaction
Department to begin the official transfer process. A Property
Purchasing Registration Form and a Property Selling Registration
Form have to be completed and filed with the Property Ownership
Certificate and then the Realty Transaction Department gives
the vendor and investor a date for the official Realty Transfer
Notice to be given.
Upon this specific date all parties or their
representatives go to the Realty Transaction Department for
the finalization of the transaction, final monies change hands,
taxes are due as are legal and agency fees and once the property
handing over document has been signed the keys are effectively
or literally handed over to the property investor.
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