Due diligence is a virtue

A professional consultant can help you navigate the sometimes murky buying process

Beijing residential property is an attractive investment prospect, but for some buyers it can be a bit murky. So what should a potential buyer be looking for when buying in Beijing?

Entry to the market is easy -- there are no restrictions on foreign investors buying property in China and mortgages are available. However, exiting the market is less clear. There are still areas where the market is immature, such as with finding tenants once you have bought a property.

Meanwhile, the government is about a speculative bubble. New taxes are reportedly coming into effect, and there may be restrictions on taking money out of China. The new measures will also likely limit credit for property deals. It?s worth noting that these new rules follow last month?s changes in legislation in Shanghai requiring home owners pay off their mortgages before selling property.

Changing laws, of course, introduce a measure of uncertainty into the property market, making it essential that you talk to a property consultant.

?We deal with clients who have successfully bought and sold properties here. You have land right use for 70 years once you?ve bought,? said Anna Kalifa, senior manager of research at Jones Lang LaSalle in Beijing. ?Location, location and quality are the first steps. And doing your due diligence,? she said.

Due diligence is vital to make sure the developer is not going to go belly-up before you?ve moved into your new property. The actual mechanics of buying are straightforward. You find the property, sign a deposit agreement and put three percent of the value of the property down. Then you sign a notarized purchase agreement and pay afurther 27 percent to the vendor. The ownership details are changed at the district?s real estate office, you pay tax and the vendor receives the remaining 70 percent of the purchase price. Then you receive your property licence, and the keys to your villa, apartment or courtyard-style home are yours.

Buyers need to outline their holding period and be aware of local zoning laws to be sure that in six months time something unexpected doesn?t get built on the doorstep. An attorney is essential. Also, as there is no title insurance, buyers need to make sure the developer has a certificate.

The timing of how you pay also has to be nailed down. Janet Au from the property advisers Debenham Tie Leung reckons that as well as the hardware of the building, it?s important to look at ?software?, such as building-management services. ?Good property-management services are another reason why high-end apartments sell very well. You see such deterioration of buildings if the building management isn?t good,? Au said. Kelly Morris at Savills said the lack of a tradition of land use and rights means there is ground to be made up on the regulatory side of property dealings, but she added that progress was being made.

?In the UK, land rights have been tested for many centuries -- here it?s pretty far out right now, but it?s getting better at protecting rights,? said Morris.

When deciding to buy a property, you need to decide whether it will be a property to live in or an investment. ?This determines the weight one would attribute to personal factors, such as the proximity to your place of work, design preferences etc, during the selection process,? said Kalifa.

For many outside investors buying in Beijing, the property is often a little bit of both. Most foreigners who come to Beijing, for example, know how long they are going to be in the city, so there is a good chance the property will be rented out or sold at some stage.

?Considerations about an asset?s income potential, appreciation prospects and investment risk become at least as important as personal preferences,? said Kalifa.