Selling a home in mainland China? What foreigners and Hongkongers need to know
Procedures for foreigners and Hongkong to follow when selling a property they own in China
Raymond K. K. Ho is managing director of Vigers Appraisal & Consulting and is an expert in property matters in China. Heexplains the rules and regulations that govern the sale of real estate by a foreigner or Hong Kong resident on the mainland.
How can a Hong Kong resident or foreigner dispose of a property in mainland China?
To sell a property, local and foreign owners, including Hong Kong residents, are advised to assign a licensed estate agent to handle the transaction. The buyer, seller and agent have to sign the sale and purchase agreement, although the buyer and seller can still enter into an agreement without involving an agent. A sale and purchase agreement stipulates the rights and responsibilities of each party, [such as] which tax must be borne by which party, transaction price, payment terms, liability for breach of contract, [among others]. Under a three-party agreement, the buyer pays a deposit (less than 20 per cent of the consideration value) for the purpose of binding the seller to the deal. An indispensable clause in this agreement requires the seller and buyer to sign the formal property sale and purchase contract within a certain number of days. Based on the price and payment terms agreed upon, the agent drafts and then has the buyer and seller sign on the dotted line. The agent then submits the signed contract through an online platform and obtains a contract number as proof of the transaction. Property sellers are advised to commission a reputable agent or property consultant as frauds and scams have been noted in some transactions where bad apples in the real estate market have been involved. As a property owner, also note that transfer of title to the property is prohibited if the ownership is under dispute or frozen; if ownership has not been properly registered; or the certificate of ownership has not been issued or obtained.
How can Hong Kong residents transfer property ownership on the mainland?
When a property is transferred, the original and new owners have to register at the real estate authorities where their property is located, with relevant documents like the certificate of ownership or the certificates of land-use rights and of notary. If the property is to be inherited by the heir of the owner and that heir is a Hong Kong resident, the heir has to obtain proof of his/her family relationship with the original owner prepared by a qualified Chinese lawyer. Then the original owner, his/her spouse and the heir have to register at the local notary office with documents such as certificate of ownership, Home Visit Permit and ID card of the heir as well as the information about the heir’s relationship with the original owner, his/her name and occupation. If the original owner or his/her spouse has passed away, the death certificate of the deceased has to be submitted as well. After the notary procedures are completed, they also have to register at the local real estate authorities for property valuation and ownership transfer.
What taxes are levied on the seller of the mainland property?
The Chinese government levies a wide range of taxes, including transaction fees, registration fee of ownership of a building, land-use tax, deed tax, stamp duty, individual income tax, value-added tax (VAT), land-transfer fees, [among others]. Besides the agent’s fee and registration fee, the seller also has to pay stamp duty and VAT, as well as enterprise income tax and business tax if the subject property is held in a business entity, and, at 0.05 per cent of the property price, is payable by both parties. Land appreciation tax, or value-added tax, is payable by the seller. VAT is levied on the value added through the sale of real estate. The value added is calculated as the difference between the amount of the income derived from the sale and the amount of certain deductible items. In Beijing, Shanghai, Guangzhou and Shenzhen, city governments currently levy a 5 per cent VAT on the sale of all homes held for less than two years. Sales of smaller homes are not subject to the VAT levy. If profit is made, individual income tax is also incurred and is charged at 20 per cent of the profit generated there from when the asset is sold.