By Xiao Wu, Editor, Shane Farrelly, Stringer.
When intending to own a house in China, foreigners who have lived or want to live in China for an extended period of time may have heard of the rising house prices in China’s first-tier cities, such as Shanghai, Beijing, and Shenzhen. Therefore it is becoming increasingly more attractive for expats to flock to second-tier cities such as Chongqing. A combination of more reasonable prices and a high level of quality in the rapidly developing mountain city has garnered great interest from the expat community in recent years as the city evolves into a more modern and international metropolis. However, questions still arise in cases where expats have little to no knowledge of the conditions of whether they can and how to buy residential properties or land in China. This article will introduce important information you need to know before investing, buying and owning real estate in China.
Ownership of Real Estate and Land
It is important for investors to be aware of China’s special policies on the ownership of real estate and land.
In China, ownership of real estate and land use rights are two distinct concepts. In more detailed terms, China imposes a “socialist public” ownership on all land, which means that no one person/organization can technically own a plot of land. When one purchases real estate in China, they are actually leasing land usage rights that will eventually expire after a fixed amount of years. Land right terms depend on the manner in which the land will be used, as follows:
Land use type
|Industrial, education, science, culture, public health, sports, mixed-use/other||50|
|Commercial, tourism, entertainment||40|
Although the original ownership of the land belongs to the state, those who acquire land use rights can manage the land they receive, including for the purposes of housing construction, the exchange of land, inheritance, guarantees, mortgages, etc. If the country revokes the land use rights in the course of such action, the land user will receive corresponding compensation according to the particular case. If the land use right is transferred to a new owner, the terms of the original lease will not be reset, which means that the original land use contract expiration date still applies. However, when the land use period expires, the real estate owner may need to pay the land use price again based on the current land market price. The land use period can also be automatically updated at this time.
Purchasing real estate in China can be a complex procedure as the eligibility requirements for buying real estate are numerous, therefore investors must be aware of the actual process.
A foreign individual is only allowed to purchase one house for self-use within the territory of China, such foreign individuals must have worked or studied in China for at least a year. As for foreign companies who set up a branch or representative office within the territory of China, they may purchase a non-residence house required for business purposes limited to within the city where such a branch or representative office is registered. Please be aware that the purchase policies differ in each province in China, especially in Shanghai and Beijing. Additionally, you can buy property directly via developers, individual sellers or agents, however, it is important to hire a lawyer in such cases, especially if the buyer is not familiar with the real estate system in China.
It is also important to note that for non-permanent residents who don’t work or run companies in Chongqing, they must pay property tax when buying a second property, which will be levied every year, even after the home is transferred.
Chongqing, along with Shanghai was one of the first Chinese cities to enforce property ownership taxes in 2011, raising taxes on those with multiple homes in order to penalize property speculators.
When the appropriate funds have been gathered and the property has been chosen, then the application process can begin. It is recommended to go through a professional agent as they can help sort through any possible problems that may arise. It’s also important to entrust a law firm to conduct due diligence in order to assure that there are no hidden mortgages, liens or encumbrances attached to the property, as policies and regulations vary from region to region.
The purchase process includes the following steps:
1. Submitting an offer
Submitting an offer and paying the deposit which will also include the price & the payment schedule, among other details. Once the offer is accepted, a deposit of one percent of the purchase price is required.
2. Sales & Purchasing Agreement
The Sales & Purchasing Agreement shall including the selling price, payment of taxes, payment installments, and payment terms, as well as what will happen if a party can’t fulfill the conditions of the agreement etc..
It is highly recommended to engage a professional lawyer to firstly review the agreement, which shall also be notarized. When the buyer has signed the agreement, he or she should pay an amount equal to 20-30% of the purchase price. After the deed has successfully been transferred, the buyer pays the remaining percentage and the purchase is then complete.
3. Registration of the Contract at your Local Police Station
In order to guarantee the realization of property rights in the future, the purchaser can apply to the registration agency for advance notice registration in accordance with the agreement. After the advance notice is registered, if the right holder, without the notice registration, agrees to dispose of the real property, the effect of the real right of property shall not occur.
4. Transferring the Real Estate
Finally, the immovable property should be transferred from the owner to the buyer. A scrutiny check of the property is very important as both parties often agree in the contract, all risks associated with the house, including but not limited to the risk of damage and damage to the house, are transferred to the purchaser from the time of delivery.
5. Transfer Registration
The purchaser becomes the owner when the transfer is registered. Transfer registration means that when the property is transferred from the seller to the buyer, the buyer obtains the building ownership certificate.
( Thanks to Shane Farrelly who represents the Chongqing Branch Office of D’Andrea & Partners Legal Counsel, website: www.dandreapartners.com, a company of DP Group which was founded in 2013 by Carlo Diego D’Andrea and Matteo Hanbin Zhi, both of whom have extensive backgrounds in Chinese and EU law, for writing this article. DP Group currently has four service entities: D’ANDREA & PARTNERS Legal Counsel, PHC Tax & Accounting Advisory, EASTANT Communication and Events, and CHANCE & BETTER Education Consulting. DP Group has a variety of branches around the world, with locations based in major developing economies.)
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