Information for Expats in China for Purchasing Accommodation
Foreigners are able to buy a property but there are not many who have ventured to do so. Most foreigners who have bought property are long-term residents and intend to remain in Beijing. Foreigners must be able to prove that they have worked or studied in China for at least a year. The property must be for personal use and cannot be a pure investment purchase (cannot be rented out to tenants). As long as you meet qualifications, there are no stated restrictions on the kinds of properties that foreigners are allowed to purchase.
There are financing options available to foreigners from Chinese and foreign banks. If you are purchasing a new property, the developer likely has a pre-existing arrangement with a bank to offer financing. If not, you can turn to local lenders like the Bank of China (http://www.bankofchina.com/en/index.html), Industrial and Commercial Bank of China (http://www.icbc.com.cn/icbc/sy/), Bank of Communications (http://www.bankcomm.com/BankCommSite/en/index.jsp), or the Hong Kong-based Bank of East Asia (http://www.hkbea.com/hk/index.htm). British-based banks with branches in Beijing, like Standard Chartered (http://www.standardchartered.com/home/en/index.html) and HSBC (http://www.hsbc.com.cn/1/2/home), also provide financing options. Real estate agencies often advise foreign clients to turn to foreign banks for financing to avoid communication issues.
Mortgages can range from five to 30 years. Many banks will only lend between 50 and 70 percent of the value of the property and certain banks will have a maximum lending sum. The interest rate on mortgages provided by Chinese mainland banks are linked to lending rates set by The People’s Bank of China, the nation’s central bank. Home-loan rates vary from bank to bank, ranging from 70 percent to 110 percent of the central bank’s benchmark. Rates are dependent on economic climate. US dollar loans offered by Hong Kong and foreign banks are typically based on the US Prime Rate.
Contact each bank directly regarding their specific lending requirements. You will have to fill out forms, show identification documents, a housing contract, proof of stable income, and proof of having been a resident for a year. Documents in English will need to be translated into Chinese by an officially recognized translation firm. Once approved, the bank will draft an offer letter for you to sign. Once signed, the bank will prepare and notarize a contract for the loan.
Employ a real estate agent and a lawyer when endeavoring to purchase a property. An experienced agent will be invaluable to help a new buyer navigate the nuances of Chinese real estate. Before signing anything, have a lawyer look over the documents. Contracts will be in Chinese and it’s best to have a reputable firm assist you in the purchase. They will oversee the following steps of the purchase:
- Conducting due diligence: When looking at real estate, make sure you take note of the neighborhood. Ask how old the buildings around yours are, get a feel for how fast the area is developing (if not developed already), and make sure you know the age of the unit you are looking to buy. It’s important to note when the original owner bought it as well since buying private property in China does not include buying the land underneath the property (see “Risks”). Ask about the regular maintenance fees for the unit and how often it is collected. Make sure you know about your neighborhood’s history, potential future development, and the building/unit itself before deciding to purchase!
- Negotiating the price: The sticker price is rarely the final price if you are buying from a private owner. Previously owned units may require some updating, replacement of appliances, etc. Use this to your advantage and negotiate a lower price in exchange for doing the upgrading yourself. Or negotiate free upgrades, cleaning, or new appliances into the price. If you are buying in new development from a developer, the price will be harder to negotiate since unit prices are calculated per square meter. However, if it is a new, pre-built unit, you can often choose less expensive fixtures, flooring, and appliances to keep your cost down.
- Drawing up the contract: The seller will be drawing up the contracts so before they do, remind them exactly what you’ve agreed upon verbally and write down any additional details for them so that the contracts will be accurate the first time around.
- Registering any contracts: Your broker will help you register your contract with the management office of your complex and with any relevant government agency.
Keep in mind that even if contracts are translated into English, only the Chinese contracts are valid in court.
There are risks when buying in China. Construction quality is not always reliable, even in new developments in Beijing. If you are buying before a property has been built, you run the risk of ending up with something that looks nothing like the brochures and miniature models that entice potential buyers. Property owners in Beijing also do not own the land on which their homes and apartments are built.
When the home or apartment was built, a Land Use Right Certificate was issued to the builder which allows the land to be “borrowed’ from the government for 70 years. By the time you purchase your home, the clock on the 70 years has likely already started ticking unless you are buying a brand new property. Real estate professionals currently believe that the land use right will be renewed at the end of the 70-year term. However, no one can be sure what will happen in the future regarding this regulation.