purchasing apartment

[rezaf]

what are the laws and regulations for foreigners purchasing apartment in shanghai(pudong)? i read somewhere that foreigners can not buy second hand houses. does it mean that a foreigner can buy any new apartments that the chinese can buy?

[muyongshi]

Well I guess rules can be different for different areas but I thought they were pretty set throughout the country and I have two friends that just fully bought (very legally as they had a lawyer do everything with them) a second hand house.

Sorry I can't be more helpful than that but I hope it helps a bit...

[Senzhi]

Foreigners have the same rights as Chinese citizens in buying property. Unfortunately, that also includes the cumbersome paperwork with the government.

In fact, foreigners are even encouraged to invest in properties, as the government offers sometimes tax incentives, albeit mostly only to expatriates who hold a DGM title or above in multinational companies with an investment of at least US$10 million or more.

[cdn_in_bj]

Foreigners have the same rights as Chinese citizens in buying property.

This statement is misleading. Under the new rules, foreigners can only buy a property for non-investment purposes after having shown that they have resided on the mainland for at least a year. And I believe they have to have been here on a residence permit; F-visa doesn't count. And this is enforced at the local level, meaning that if you resided in Shanghai, you can only buy a property in Shanghai, and not in Beijing.

In addition, once the residency requirement has been met, you are only allowed to buy one property and it's supposed to be for your own use. This means that you cannot buy commercial property (such as first-level storefront space that is common in the larger developments), and that you are supposed to live in it and are not legally allowed to rent it out to others. Otherwise, it would be considered investment property, which carries with it different rules and requirements for foreigner ownership.

Finally, I was also not aware that foreigners could not buy second-hand housing. Second-hand properties can carry various taxes depending on the size and age of the apartment, as well as taxes on the capital gains. These are levied on the sale of the apartment, however by custom they are passed onto buyer. Just be aware that these taxes can add from 5-25% onto the price of a second-hand home.

[rezaf]

This second hand house rule is just for Pudong and a few other areas in Shanghai.

I am going to stay in china for the next 12 years, so I figured out if I buy an apartment I would be able to save a lot of money because of not paying the rent. Do you think that getting a lawyer is necessary in the process purchasing?

[muyongshi]

Having a lawyer in a system that you are not familiar with is good. But I will tell you HOW to do it. Go to a university and make friends with a law professor. And then it's usually free (sh)

I kind of doubt the whole second-hand rule you are saying but I can't say it's not true...just confirm with the lawyer

I had another friend who thought about buying but being way to practical as he was he figured out that he would have to own for over 40 years before it became more worthwhile than renting (not factoring in selling price). So just crunch the numbers but even with resale value I wouldn't be surprised if 12 years is not enough...maybe, maybe not.

[cdn_in_bj]

I should also add that as a foreigner you may have a hard time obtaining a mortgage. I am not sure which of the domestic banks that developers usually partner with offer mortgages to foreigners - you may have to obtain a mortgage separately from a multinational bank (with operations in China). So this is something you should investigate, or be prepared to pay the entire cost of the apartment in cash.

I am going to stay in china for the next 12 years, so I figured out if I buy an apartment I would be able to save a lot of money because of not paying the rent.

I'd be interested in how you ran the numbers to conclude that you'd be better off buying versus renting, especially in China.

I roughly ran some numbers using the example of a place a rent of 4000/month right now, and assume on average a 5% annual increase in rent over the next 12 years, you will end up paying approx. 792k RMB in rent over the next 12 years (or an average of 5500/month). Now if we consider buying, such an apartment would probably be a 100 m2 2-bedroom apartment selling for 17000/m2, or 1.7M RMB in total to purchase. Using current interest rates and assuming a down payment of 30% with a mortgage period of 20 years, then the monthly mortgage payments would be around 8400 RMB, and over the life of the mortgage you will pay a total of 815k RMB in interest.

If we extend the period to 30 years, then the monthly payment drops to 6900 RMB, however the total interest paid then becomes 1.31 Mil RMB!

Since we are dealing with a developing country here, housing appreciation is a valid consideration. If you were betting on a continued housing price appreciation over the next few decades (or even just a few years, if the current rate keeps up!) then this move could really pay off. However, many people already thought of this years ago and in the short-term I think there is an oversupply of housing (although demand remains exceptionally strong!).

Based on the calculations above, going the buying route would leave you net cash-flow negative. Now, if you were to rent out one of the rooms to someone (illegally), then you may be able to make up some or all of the difference.

[cdn_in_bj]

Rezaf, just curious if you ended up buying that apartment? If so, would you mind sharing with us how that went? Did you run into any unexpected challenges?

[flameproof]

My advise:

1. Buy through a lawyer

2. Never ever never buy in the name of you GF or even wife. If you buy in your GFs name she WILL break up and you have no rights whatsoever to that place.

[lilongyue]

Call me paranoid, but I would never consider buying an apartment in China. 1) You'll never own the land, the government does, and so could at anytime choose to "relocate." Now, this may not be an issue in one of the already highly developed areas, but I don't like the idea of my house sitting on someone else's property. 2) There's an assumption that China will still be a place worth living in after 20 or more years (if it qualifies as that now). The crazy industrial boom that is basically destroying the country's environment (and the peoples health) will end someday, and it might not be pretty. 3) If past Chinese behavior is any indicator of how Chinese react to foreign governments doing things the Chinese don't like (meaning rampaging through the streets and destroying businesses, like was done in recent anti-Japanese rages, or the trouble after the "accidental" bombing of the Chinese embassy in Eastern Europe), you may find yourself one day making a run for the nearest airport, and kissing the millions of Yuan you dumped into your house goodbye. I heard that after the bombing of the embassy, Chinese weren't distinguishing between what country the foreigners were from. During that time, someone I know who is African and had lived in Hangzhou for severl years and spoke Chinese, etc., went to a bar. The guards didn't want to let him in, out of concern for his safety, but he went in anyway. He got so scared by the attitude of the Chinese in the bar he went back home and waited for thing to cool down before going out again. This may sound extreme, but these are issues that should at least be given brief consideration before buying.

[simonlaing]

I recently wife my wife (both names on the deed) bought an apartment in Nanjing.

The loan works out to be 2100 RMB a month where as we were paying 1800 in rent a month. There are no penalties to paying the loan back early so we plan on paying the full amount back in 6 to 8 years, around the time we will feel like having kids and then move into a bigger place for sanity.

Even if the house stays the same price we will make money as we have saved in rent. If the trend of doubling every 3 years continues we could quadruple our money.

My place is small and in the middle of the city which also saves on transport costs as I can bike everywhere.

If you plan on being here for longer than 2 years and can afford the down payment. It makes sense to buy rather than rent. 3 years ago I could of bought my apartment for half its current price. Mind boggling.

have fun,

Simon:)

P.S. being married helped in getting the loan it seems. The tax is higher for foreigners on buying property but not as high as 25% Mine was under 8% , .7% perhaps?

[cdn_in_bj]

I recently wife my wife (both names on the deed) bought an apartment in Nanjing.

Congratulations!

The loan works out to be 2100 RMB a month where as we were paying 1800 in rent a month. There are no penalties to paying the loan back early so we plan on paying the full amount back in 6 to 8 years, around the time we will feel like having kids and then move into a bigger place for sanity.

Even if the house stays the same price we will make money as we have saved in rent. If the trend of doubling every 3 years continues we could quadruple our money.

Does your complex have a management fee? What about maintenance costs?

My place is small and in the middle of the city which also saves on transport costs as I can bike everywhere.

That's a definite plus - time saved in commuting is time gained for other pursuits.

If you plan on being here for longer than 2 years and can afford the down payment. It makes sense to buy rather than rent. 3 years ago I could of bought my apartment for half its current price. Mind boggling.

You have to consider the lost opportunity in your down payment - currently US$ term deposits here are paying over 3%. Using a hypothetical down payment amount of 200k, that works out to over 6000 RMB/year. Of course, if you strongly believe that there is room for more amazing property appreciation, then it is the way to go.

Also, when it comes time to leave it can sometimes be a bit tricky to get your RMB converted and out of the country. That's assuming you plan to sell the property when you depart. But this probably won't be an issue with your wife's name on the deed.

P.S. being married helped in getting the loan it seems. The tax is higher for foreigners on buying property but not as high as 25% Mine was under 8% , .7% perhaps?

Are you referring to the tax on sale of second-hand property (which the previous owner passed onto you)?

[simonlaing]

The house I bought was a second hand house, and thus I had to pay tax, but didn't have to pay the redecoration fee though we had some work done on the kitchen and some of the plumbing.

It doesn't have a management fee. It also doesn't have parking if we end up buying a car, (compared to suburb housing which it came with or was an optional add on to the price.)

Almost all of the new housing in the downtown area is out of our price bracket.

The house was built in 96 and has a 70 year rental (from the government) contract. We think that it will be redeveloped in 8-15years by which time we will want to buy a bigger house anyway. So the running out of the term limits of the Government repossessing the house was not a big issue.

Nanjing is an academic second tier city and it seems people follow the letter of the law much more closely .

Also the law changed if your spouse is buying a 2nd house the down payment minimum is 40% and I think the loan rate is higher. It was strange that all the banks had pretty much the same loan conditions.

For those people buying in Shanghai, I have heard some people say there will be upper limits of 20,000 yuan per square meter put on downtown apartments so that local poor shanghai people can still afford to live there, but I am not sure.

The prices in Nanjing are less than Shanghai and Beijing to my knowledge.

Good luck, have fun,

SimoN:)

[rezaf]

It's normal for a new apartment to be 毛坯房, but today I saw a second hand apartment like that (64m2 115万rmb). There were only something like a toilet in the bathroom and something like a tap in the kitchen. A Chinese couple has been living there for a year and it was like a big 垃圾箱 . When the broker told me that it was a 毛坯房, I thought that it must be an empty apartment at least. Looking at real estate websites I thought that apartments were cheaper in Shanghai suburbs(Zhangjian) but now I know what they mean by "cheap".