Real Estate Practices in China
The Chinese Overall Real Estate Environment
Traditionally under communist rule, housing was provided at very little cost and individuals belonged to work-unit collectives of State-owned enterprises. As the government opened the economy in the late 1980s, it introduced land reforms; individual ownership was made possible through the transfer of land-use rights in 1989.
The Chinese government has implemented several policies which have attracted millions of dollars of foreign investment in the real estate in past years, yet there remain areas of caution, which one would expect of any rapidly developing emerging market. These include changing laws and regulations, lack of standard industry practices, and limited transparency, for example, there is no formal MLS system in China. Nonetheless, the market has attracted millions of dollars from overseas and continues to see increased sophistication of supply in both residential and commercial sectors.
Property Ownership Development in China
In China land is owned by the State. A form of private ownership is accepted through transfer; land-use rights, whereby land technically is still owned by the State and a holder of the land-use rights may lease the land for a certain period. Land-use terms vary according to use of the property and as a guideline are - 40 years for office, 50 years for industrial, and 70 years for residential.
In the mid-to-late 1990s in particular many domestic as well as foreign overseas Chinese developers (e.g. from Hong Kong and Singapore) acquired land-use rights to build residential and commercial developments. In the last two years, the market has attracted U.S. and European foreign institutional funds which are seeking investments in china real estate.
Individual Property Ownership in China
Land-use rights can be re-transferred - so in the case that a developer completes a residential project and sells units to individual investors, land-use rights are re-transferred to the individual buyer. The term of the land-use right continues from the time of the original transfer and does not recalibrate from the re-transfer time. Property may be owned by two or more citizens or legal persons.
Residential properties are commonly delivered in bare-shell condition to individual purchasers, although this is beginning to change in Beijing and Shanghai. Standard lease agreements are 12 months and for shorter term leases, serviced apartments are a popular option. The government requires the use of a standard lease agreement (which is in Chinese) and that leases are registered with the real estate bureau.
The government continues to introduce legislation to develop the real estate market according to nation-wide economic goals. In 2006 in an effort to reduce speculation and price increases, government introduce regulation prohibiting foreigner individual purchases of residences unless for self-use and if they lived in China for over a year. Government has also modified capital gains tax laws in the last year. Also introduced was the requirement that all institutional purchases be made by onshore entities by entities legally registered in China (as opposed to offshore entities, which previously had been the vehicle of preference by foreign investors).
Mortgages in China
Mortgages are provided by domestic and foreign banks for property purchases in China. Government has limited the number of mortgages individuals can obtain in an effort to reduce speculative buyers. Mortgage terms vary according bank but are generally from 5-20 years and generally requiring 30%-60% down payment depending on the applicant case.
Commissions in China
For leases in general the market practice is that landlords pay real estate commission from 70% to 100% of one month’s rental to the agent net building management fees. Lease terms are 12 months or more. For shorter lease terms, serviced apartments are a convenient option. For first hand purchases, buyer pays 1% of total transaction value to the agent and for second-hand purchases the buyer and seller both pay 1% to respective agents.
[Disclaimer: Asia Pacific Properties is not responsible for the accuracy of the above information although we believe the above information to be reliable.]