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Housing & Accommodation

Buying Property in China

Have you lived in China for a while and are ready to be a home owner? Buying property in China is a common choice for expats who plan on settling down there. Our article covers the requirements for expats, advice on the housing market and the purchase, as well as some info on the financial aspects.

The Requirements

After having lived in China for a while you might find that it is time to settle down in your own home. Buying property in China, as opposed to paying rent, may seem like a logical solution for expats who are in it for the long haul. However, it is important to keep in mind that buying your own house or apartment comes with a lot of requirements and restrictions.

For instance, you have to provide proof that you have lived in China for more than 12 months, in order to be permitted to purchase a home. This time frame also varies depending on which municipality you choose to live in. In Shanghai, for instance, you must submit copies of your Chinese tax receipts to provide proof of residence for at least 12 out of the past 24 months. Once you have bought a house or an apartment, you are required to live in it. Buying property in China as an investment and renting it out is not permitted. Please remember that you can only own one home in China.

Make sure to talk to your attorney and/or real estate agent about all the rules you have to abide by and the specific restrictions you need to take into account before buying property in China.

The Chinese Housing Market

While we are talking about buying property in China in this guide, it is important to point out that this is actually quite misleading. In China, property is simply leased for the duration of 70 years. After this time, the lease is usually renewed. However, the Ministry of Housing and Construction can theoretically nullify your lease at any time if your property is needed for development. The compensation you would then receive might be a lot less than you originally paid. Newer houses and apartments are usually not affected by this. If you plan on buying property in China which is a little bit older, then do so on a freehold basis. This category requires a higher buyout payment and is thus less attractive for developers.

How to Buy Property in China

For foreigners, especially those with limited knowledge of the housing market, hiring a real estate agent is essential when buying property in China. They can help you find the right property for you and support you throughout the entire process. Once you have visited the Municipal Bureau of Public Security to get proof of your long-time residence in China, you can start to visit various properties and, if one of them is suitable, begin the negotiations. The best way to do this is by handing in a preliminary contract with the terms and conditions of the purchase. If the current owner agrees, you have to pay a percentage of the agreed price.

Together with the current owner, you will then draft and sign the official contract. Keep in mind that, as you are a foreigner, this contract has to be notarized and the purchase has to be approved by the government. Finally, you need to visit the Deed and Title Transferring Office to have the title of the property transferred to your name. This may take a few weeks.

The Financial Side

As you may already know, buying property in China is neither easy nor cheap. Unless you have lots of cash stashed away somewhere, you will most likely have to get a mortgage when buying property in China. This will require a lot of leg work and strong nerves, not to mention at least 30 percent of the purchasing price. This is the amount you have to raise yourself in order to be eligible for a mortgage in the first place. Keep in mind that this is simply a minimum as stipulated by the government and some banks might actually ask for more (depending on the price of the property and the reputation of your employer). Take your signed and notarized contract to the bank, together with other required paperwork (call ahead to find out which documents you need to present) and find out what they can offer you. It is important to know that some Chinese banks may not be willing to give you a mortgage if you are not married to a Chinese citizen. Others might only support specific housing developments.

Aside from the mortgage, there are other costs you need to keep in mind when buying property in China, such as the commission and good-faith deposit your real estate agent might charge you. On top of that, taxes and insurance also have to be paid. For instance, you will be responsible for 3-6% of the selling price in deed tax, 0.5% in transfer feers, 7% in city maintenance and construction tax, and up to 0.3% in notarization fees. All in all, these taxes and fees can amount to more than 11% of the selling price. One challenge for many expats buying property in China is to get their hands on enough cash in a short amount of time. If most of your assets are stored overseas, wiring enough money in time to pay your 30% deposit can be quite difficult.

Property Prices     

The amount you will have to spend when buying property in China finally depends on the city you live in, the location you prefer there, and on the size of the property, of course. If you work on a freelance basis or in a job that gives you a certain amount of freedom when choosing your new home, it makes sense to do a lot of research. After all, an apartment at the Bund in Shanghai or in Sanlitun in Beijing may cost five times as much as an apartment of the same size in Chengdu, for instance.

On average, you can expect the following prices (per square meter) when buying property in China’s city centers. Keep in mind that housing prices can fluctuate and that these are more of a general estimate:

Unfortunately, there is a considerable gap between Chinese property prices and the average income in China. Thus, it takes the buyer around 22 years’ worth of wages to pay off their property. The results of this situation are so-called “housing slaves”, people who have to invest about 70% of their salary after buying property in China to pay off their mortgage.

Property Tax

The taxes the Chinese government derives from property are mostly based on title transactions. Unlike most other countries, China does not charge a holding cost for residential property. The largest source is the 3 percent tax on property value which is paid by the buyer for transferring the property rights. However, recurring property taxes are only raised from commercial property owners.

Recently, the government has introduced residential property tax in local pilot programs that are supposed to rebalance the Chinese real estate sector. Unfortunately, many of these programs have failed due to resistance from local authorities. The government would have to draw up a database of property ownership, but many residents and local officials refuse to reveal how many properties they own in the first place.

For the upcoming years, major financial reforms are in the planning, including ones affecting the property tax. This is why you should research this matter regularly or get in touch with your financial advisor before buying property in China.

 

We do our best to keep this article up to date. However, we cannot guarantee that the information provided is always current or complete. 

InterNations Expat Magazine