The first time you start thinking about buying Beijing real estate, you'd be forgiven for thinking the process must be impossible, or closed to Westerners, or that you need to go through terrifying and draconian twists and hoops and obstacles to land yourself an apartment or property.
But in fact, the Chinese government recognized some time back the value of opening its doors to foreign investment money and has done much to modernize real estate investing, making it a much more open, streamlined process than it used to be.
Of course, purchasing real estate in Beijing is still rather different from doing so in many Western countries - it's still a bit of a frontier out here, with fewer protections, greater risks, and odd quirks you wouldn't even think to expect without doing your homework first.
Fortunately, that's what this article is designed to be - homework
on property-buying in Beijing, so you can get the Beijing real estate
you most want, with as few hang-ups and as little risk as you can
possibly get.
Home-Buying, Chinese-Style
To get a handle on what the Chinese real estate market - and more specifically, the Beijing real estate market - looks like, I'm going to show you what home-buying looks like for your average Chinese first.
For most Chinese, there are only three major places to put hard-earned money:
- Banks (with very low returns)
- Stocks (with very volatile returns)
- Real Estate (with, as of right now, very high returns)
Because banks feature such modest returns, they turn out to not be such a good investment strategy for larger amounts of savings.
And the stock market in China is an immature one - stocks go up because your brother's friend's cousin's daughter bought a hundred shares of XYZ stock and it shot through the roof, so now she's telling everyone she knows to buy that stock, and everybody's listening. Stock prices right now almost have as much to do with word-of-mouth and fast-spreading rumors than they do with any informed valuation of the companies they're issued by. This makes stocks very risky purchases - they peak fast, and crash just as fast.
Which leaves us with real estate: a far safer investment than stocks, and a far more profitable one than banks.
Is it any wonder why the Chinese prefer to put their money into a Beijing apartment or Beijing home?
When you meet a landlord in Beijing, it's just as common to find out he or she has 6 or 7 properties here in town as it is to find out he or she has one. As soon as someone has enough money to purchase real estate, money starts getting plowed into buying as much of it as possible.
Home-buying is the Chinese investment strategy of the early 21st century.
As a result of this, home prices have soared, and have been soaring. There was a short-term crash in Beijing after the 2008 Olympics ended, but prices have more than rebounded since.
In fact, prices are soaring so high the Beijing government has become understandably nervous; it's watched the housing bubble bursts happening in the West and the effects those had on the West's economies, and shrewdly decided to look for ways to cool the fervor China's currently experiencing for increasingly expensive homes.
The following are some of the limitations currently in place on buying real estate in Beijing designed to curb the inflation rate of the bubble that's speculated to be in place:
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Beijing hukou holders who are originally from Beijing and who own one home are now permitted to purchase only one additional home
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Beijing hukou holders who are originally from outside Beijing are capped at buying one home maximum
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Restrictions on banks have been raised to allow banks to require higher down payments on real estate purchases and charge higher interest rates to mortgage holders
Further,
plans are in place to begin taxing property owners (there previously
had been no property tax); this is chiefly seen as a measure to cool
the hot property market as well.
These are all recent changes designed to limit the ability of individuals to purchase homes, and to head off the scenarios encountered in the West of individuals purchasing homes they couldn't afford. Individual home buyers might not be terribly happy about them, but from a national economic perspective they appear to make shrewd fiscal sense.
Back to home-buying though. As you glanced through that list above, you might've asked yourself, "What's a hukou? And - do I need one to buy in Beijing?"
If so, that's a good question - and the answer is, "It depends."
It depends on whether you're Chinese or foreign, that is.
You see, if you're Chinese, you have a hukou, and so does every other Chinese out there too. A hukou is a permanent residence permit, of sorts - it says where you live, and it tells you where you're legally allowed to own a home. If you have a Beijing hukou, you can purchase homes in Beijing. If you have a Shanghai hukou, you can purchase homes there. But you can't purchase a home in Shanghai with a Beijing hukou, and you can't purchase a home in Beijing with a Shanghai one.
Hukous also have additional benefits: health care, pensions, and
free education for children in the area the hukou covers.
How easy or hard it is to get a hukou varies greatly from place to place. It's a relatively straightforward, if lengthy, process to get a Shanghai hukou, for instance - simply be a Shanghai Residence Permit holder for seven (7) years, pay taxes throughout that period, have a technical or vocational or middle-grade professional position, and be without a criminal record.
In Beijing, hukous are a rare and highly-prized commodity. In China, you naturally inherit your parent's hukou status; so if you have a parent with a Beijing hukou, you'll have a Beijing hukou yourself, too.
But aside from that, there aren't many options for Chinese wanting to establish permanent residency in Beijing; Beijing hukous are the hardest hukous to get. Only a handful (6,000 in all of 2011) are given out to companies each year for these companies to promise to recent graduates who agree to take employment with them for a year, and there aren't many more avenues open to those post-graduation who'd like to own a home someday in Beijing.
If you're a Chinese and you want to own a home in Beijing, but you can't get a hukou (and can't find a spouse to wed who has one him or herself), you're probably out of luck.
What about foreigners though?
If you're a foreigner, you don't have to worry about hukous. You can purchase real estate almost anywhere - but there are a few restrictions. We'll cover these below.
Back to the home-buying process. Let's say you've got your Beijing hukou, if you're Chinese, or you've been in China for one or more years on a work or study visa, if you're a foreigner (we'll talk about this more below). How do you go about buying the home of your dreams?
Buying Beijing Real Estate, Step-by-Step
The Beijing apartment- or home-buying process isn't terribly different from buying in the West, but it is somewhat more involved. I'll take you through the process below so you aren't trying to feel your way through the dark every step of the way.
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Due diligence: unheard of, but do it anyway. In a mature real estate market, it's a given that you will of course hire a home inspector to check a property for structural soundness, water damage, pests, and a lot more. And you'll want to do your due diligence and find out the history of the home: who's owned it, how many times has it changed hands, and have there ever been any significant additions, catastrophes, or other major events in the property's history?
Well, because the Beijing property market is still relatively young, these industries are virtually unheard of. A quick Google search for "Beijing home inspection" turns up only a handful of companies, and you won't fair much better looking in Chinese. Still, for a purchase as major as buying a home, you'll absolutely want to search out and secure one of these companies to take a look at things first. Most Chinese simply assume that new = good, and they won't buy anything else.
But especially with construction quality varying as widely as it does in a rapidly developing town like Beijing - you can find some pretty shoddy workmanship merely a block away - or less - from some of the city's most carefully constructed edifices, it's critically important for your own sake that you make sure you know which is which.
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Make sure the seller has all the proper authorizations. When buying any property in Beijing, there are two (2) authorizations you must make absolutely certain the seller has and can show to you:
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Zone authorization - that the property you're about to purchase has been constructed in the proper building zone (e.g., residential property constructed in a residential zone; commercial property in a commercial zone; etc.)
- Land lease terms and length
- the terms of the land leased from the government, and when that lease
expires. In China, land is owned by the government, not individuals,
and is merely leased to individuals for set amounts of time, typically
70 years (though this can be as low as 30).
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Cash or mortgage? Most homes in China are paid for in cash. That's right - in full, up front, one (big) lump sum. China's a savings culture, after all - credit's a relatively recent addition to the economy here... there isn't even a prominent credit score measurement like there is in the West (China is just beginning to have something like this, but credit cards remain relatively difficult to get, and are popular only among the young).
It is possible to get a mortgage in China, however, even if you're not Chinese - but you'll be required to show that you have enough to make at least the initial down payment, which can range anywhere from 30% to 50% of the purchase price.
One note on mortgages that will prove very important: you'll only be able to secure a mortgage with a Chinese lender after you've made the down payment on a home. This is important for what we'll discuss in the next bullet...
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Make sure you're certain you want to buy - and can buy. Once you've agreed on the final purchase price and signed an confirmation agreement with the seller, and you've made your (commonly 30%) down payment on your new home, should you decide to change your mind and pull out - tough luck. You won't be getting that deposit back. For this reason, it's absolutely imperative you make certain that you either have the savings to complete the purchase, or you will absolutely be able to get the mortgage to do so.
Of course, the door swings both ways - should your seller decide to back out of the agreement once he or she has signed with you and accepted your deposit, the law requires you be repaid in full - double. So instead of you getting 30% back, you'll receive 60% of the purchase price returned to you, instead.
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Sign the contracts, make the deposit, and pay the taxes. You'll sign two standard government contracts to make a legal property transfer:
- Property Purchasing Registration Form
- Property Selling Registration Form
- Deed Tax: 3% of
property value (paid by the buyer)
- Stamp Duty: 0.1% of
property value (buyer and seller each pay half)
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Complete the official transfer process. Together with the seller, you'll visit the Realty Transaction Department and submit the following forms along with copies of each of your identification cards and the original copies of the seller's Property Ownership Certificate and Land Use Right Certificate:
Once the forms are completed and the documents are submitted, you'll wait for the transaction to complete being processed by the Realty Transaction Department (can take up to 20 days).
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Pay the property registration fee. Once processing of the property transfer is complete, you and the seller will return to the Real Estate Registry to pay the registration fee (¥550 and 0.5% of property value), and you'll pick up your new Property Ownership Certificate and Land Use Right Certificate.
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Be prepared for a fast close. While many home purchases in the West can drag out over a period of time (think 30 to 45 days), in Beijing, real estate purchases close somewhat faster (usually 23 days at maximum, including the steps outlined above). So long as you have everything you need and the seller does too, you can expect a speedy purchase process.
Without these, you can't be certain of what you're getting, and
should not agree to buy.
While standard, the parties can amend to these contracts
additional or supplementary terms attached as an appendix. The
standard agreements will be printed out at the Real Estate Registry
(you'll bring any appendices along with you), and officials will review
the purchase price to ensure it is in line with market prices (not too
high, not too low). Once approved, you'll pay the following taxes:
Once you're through all of these steps, you're now the proud owner of a piece of Beijing real estate. You can move in, have your fixtures installed, and best of all - stop paying rent.
Of course, as noted earlier, if you're not from China, there are a few other considerations you'll want to bear in mind as well - let's cover those now.
Differences for Foreigners
If you're not Chinese but you plan to buy your own piece of Beijing real estate, the you'll follow all those same steps from above, but you'll have a few other things to mind, too.
The first of these is, of course, that prices for foreign buyers are higher. There's not any legal reason saying this should be so, or any extra taxes or fees - it's just that most Chinese see a foreign buyer, assume he or she doesn't have as sharp a handle on what market prices are, and figure they can charge a bit more.
How do you get around this and get better prices? One common way is hiring a real estate agent to help handle negotiations and navigate the intricacies of Chinese home-buying regulations. That's something we can help you with here, or there are a variety of other real estate agencies available you can contact in Beijing. The standard commission for a real estate agent in Beijing is 2% of the final purchase price.
Alternately, you can do your research and find out what other properties are going for in the area you want to buy in. There's no quick and easy way to do this - no Zillow.com for Beijing, at least not yet - but as you build networks in town it gets easier and easier to find out what properties are going for.
The other main considerations to be mindful of when buying property in Beijing are as follows:
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Foreigners must be apply to be approved by the Public Security Bureau (PSB) to buy property. All foreigners purchasing in China must have an official Chinese name (in Chinese characters), notarized at a Chinese embassy (if overseas) or at a notary's office in China.
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Foreigners are not permitted to purchase property close to certain government ministries or military installations. Developers are aware of these restrictions, and will not enter into negotiations with you if they are in place.
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Foreigners can risk losing their property altogether if there is any kind of legal challenge to ownership and the foreign owner is unable to be in China for visa reasons. You'll want to make sure your visa is up-to-date, property documentation is all in order, and that you will not have problems being in China for the foreseeable future.
Aside from these, you'll want to keep in mind that:
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Because all land in China is owned by the government, and because it is only leased to private individuals for a set amount of time (typically 70 years), you can only assume the property you've purchased will remain yours for the remainder of the land use period. The Chinese government has issued no indication how it plans to handle land leases coming up for expiration - it is assumed for reasons of economic stability, the government would be loathe to reclaim land, but there are no guarantees this won't be the case for some individuals.
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Chinese government branches and large property developers can purchase property from private owners at any time for standard market prices (e.g., exercising eminent domain), which sometimes may be lower than the purchase price originally paid for that property. This is mostly a concern for owners of older property, not newer developments.
Because these conditions may be different from those of the real estate market in your home country, it's important you know them so you won't be in for any shocks or surprises when buying real estate in Beijing.
Final Thoughts on Buying in Beijing
Home ownership has its plusses and minuses, but the satisfaction of owning your own home can pull things down on the side of ownership much of the time. The hardest part of home ownership in China is getting through the initial buying process - once you have the property, it's yours (well, at least for 70 years or so, anyway)!
If you're thinking about owning your own piece of real estate here in Beijing, this is a great town to be a home owner in. Strong public transportation, great cultural heritage, and a dense metropolitan city filled with people, opportunity, and things to do - Beijing's a fantastic place to call home!
See you next time,
Cerise
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