Buying a home in mainland China? What foreigners and Hongkongers need to know

Fion He is chief officer, National Research Centre at Midland China. She talks about the procedures that foreigners – including Hong Kong residents – must follow in order to buy property in mainland China.

What procedures must foreigners, including Hong Kong residents, follow when buying a residential property in mainland China?

For the buyer, the procedures are similar to those followed when buying a home in Hong Kong, except no solicitor is involved in dealing with the title check and conveyancing. The estate agent usually handles the process of buying. If you are buying a previously owned home, the process starts with drafting an offer letter to specify the price agreed on, payment schedules and other terms and conditions through the agent. After the seller accepts the offer, a deposit – usually 1 per cent of the purchase price – is paid by the buyer to the seller. If financing is needed, this is the time to apply for a mortgage. Some foreign banks with headquarters or branches in Hong Kong offer Hong Kong dollar and US dollar loans to finance property purchases in China by foreigners. Then the agent carries out the checks on the title and ownership. If you are buying from a reputable developer, it is assumed that the title has a clean slate and things are more straightforward. The buyer then signs the official sale contract – foreign buyers must have their contract notarised – after which the buyer pays a further 30 per cent deposit to the seller. On paying taxes and fees to the Deed and Title Transferring Office, the deed is transferred to the new owner, who then obtains the ownership certificate after clearing the outstanding balance of the purchase price.

Are there any restrictions on foreigners and Hongkongers buying a home on the mainland? Are there any other upfront costs?

Foreigners, including Hong Kong and Macau residents, are limited to buying one residential property for self-occupation only. It is not difficult for a foreign buyer to secure financing at 70 per cent loan-to-value ratio. As mentioned above, a foreign buyer must have his or her sales contract notarised; this costs an additional 1 per cent of the property’s consideration value. For all homebuyers, the taxes payable usually include stamp duty, payable on the sale contract, at 0.05 per cent; and deed tax, at 3 to 5 per cent depending on the location of the property.

How can a foreign buyer safeguard his interests and avoid pitfalls when buying off-plan?

Unlike 10 or 20 years ago, the mainland property market has become more mature. Having said that, certain risks still exist when buying a home off-plan, such as completion delays, poor building quality and, at worst, the developer may go bust. As a long-established agent ourselves, we strongly recommend that foreigners buy from reputable developers with a good track record. Many of them are listed companies with a sound financial standing, and so are in better shape to ensure timely delivery and quality. The government previously imposed a ban on the sale of flats on commercial land, but has recently made concessions concerning that policy.

Does that mean we can still buy this type of property?

Although the Beijing and Shanghai governments have made concessions about the sale of flats built on commercial land, buyers – locals and foreigners alike – are not recommended to buy this type of so-called “dual-use” property. The buyer may risk losing money if restrictions on illegal land use are restored.

Will I be allowed to transfer the money out of China if I sell my property, given the government’s controls on capital outflows?

Don’t worry. As long as you have the official proof that you are transferring money that was derived from the legal sale of your property out of the country, there are no restrictions at all, and you are free to do so by making an application through your bank to the State Administration of Foreign Exchange, and then transferring your money through an international money transfer.