Published on 03 January 2006 at 06:00 pm
Filed under: Asia:- China Property Guides » China Real Estate Buying Guide
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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