Buying a apartment in Shanghai guide



Buying Chinese property is often a mystery to foreigners, even to those who have been here a while. Whilst we aren’t Chinese property agents, we do get asked this question a lot, so we thought a user friendly and accurate guide could be worthwhile.

As a foreigner, you can only buy one property in China. Also, keep in mind that you must live in the property you purchase – enforcement is currently quite patchy, but that does not rule out being caught in a crackdown, should one occur.

The processes in China are very different to many western countries and legal systems. Please remember that we aren’t property agents, so we are writing this from our own experience. However, we have also spoken with some experienced property agents along the way who have helped fill in some of the gaps. Since we could go on and on, and our editor has us aiming for clarity and brevity, we will take you through the steps in a rough chronological order with our comments and tips.

In Shanghai, it’s not cheap to get started

Of these the biggest barriers to entry are probably the 12 month residency and a 30% deposit requirement. In Shanghai at least, it is quite on the pricey side, since an average apartment in a reasonable location start in the vicinity of RMB6 million (almost $1 million USD).

That’s a $300,000 USD down payment for those whose calculator has slid down the back of the sofa. That’s a bigger outlay than in most overseas property markets, with the possible exception of Hong Kong and Tokyo. That’s quite a commitment.

What are the main transaction steps?

  1. Sign a contract and pay a signing deposit, a “show you are serious” amount of say RMB10,000.
  2. The contract is registered at the Realty Transaction Department in your area. A Property Purchasing Registration Form and a Property Selling Registration Form will have to be completed and filed with the Property Ownership Certificate. Once this has been fulfilled, the Realty Transaction Department will give the vendor and investor a date for the official Realty Transfer Notice to be given. Usually in about a month.
  3. At this visit, a pin code is provided establishing that the seller owns the apartment and also that you are the only person in the process of buying this property. This pin code is important. Keep it safe. It can be checked online on the government transaction department’s website, although it is only in Chinese, so you may need a trusted Chinese friend or colleague to help. Only once you have confirmed do you move to the next step.
  4. A deposit is paid, usually 30% of the contract price directly to the owner. There is no escrow account, but since you have your pin code, litigation and suing for breach of contract is fairly straightforward (we are told).
  5. In some regions of China, you may need to organize approval to purchase. This includes checks on your residency status and a cursory check that you don’t own other properties.
  6. Organize your mortgage – this will come with a minimum purchase of insurance (so budget for this) and also understand, that right now, many banks recently are insisting on 40% cash deposit for risk mitigation. 
  7. Return to the transaction centre with your agent, the seller, probably a representative of the bank, and possibly your lawyer. This is the big day and it can take time, so arrive early, say 9am or even before. must be there to sign the documents; you can’t delegate this to a lawyer.
  8. At the transaction centre you pay stamp duty and the seller pays any outstanding property tax. Title is transferred.
  9. With the same group on the same day a visit to the property one last time to check all is in order and no damage in the interim, utility numbers are noted, before the bank organizes the final money transfer. Keys are handed over. Congratulations, you own a house in China!

What surprises first time buyers most of all, is the time required by you, the purchaser, to be present during the whole process. Count on it being three to four full days away from work, spread over several half days here and there.

The biggest tip we can offer before you get started, is that you should have someone who speaks fluent Chinese and who understands the property process with you, and most importantly that you trust. A lawyer would be ideal. This list alone won’t keep you safe, but the property purchase process is pretty straightforward once you understand the steps.

Property Taxes and Fees

When buying a property the taxes can add up to quite a bit, so they are well worth understanding. Again we aren’t Chinese tax accountants or lawyers, and things constantly change in China. We have done our best to be accurate, but it is best for you to double check your numbers with an expert before you purchase. But here is what we understand to be the case.

Transaction Taxes

  • 2% Overall stamp duty on the overall purchase price
  • 5.55% tax on gross gain if sold within five years and over set limits (as follows)
  • Inside Inner Ring Road above RMB2.45 million total price and above 140m2
  • Inside Middle Ring Road above RMB1.40 million total price and above 140m2
  • Inside Outer Ring Road above RMB1 million total price and above 140m2.

Since sellers in Shanghai usually ask for “daoshou” or in the hand price, due to the tight market conditions buyers are expected to pay the tax on top, thus raising the price. So be sure to ask if the price includes or excludes tax. Systems outside Shanghai may also bear no resemblance to this system also, since we have not checked.

Finally it is worth pointing out, in case you are new here, that property prices passed these limits several years ago and it is nigh impossible to find a property worth buying for less than these prices in Shanghai.

The New Property Tax in Shanghai

The new annual property tax in Shanghai launched in ranges from 0.6% to 0.8% per annum. Although this should also be paid to the transaction center each year, it is not intended to be a transaction tax but rather than a holding cost tax paid annually. If it is not paid, then it will be collected at the time of next sale so it is sort of acting like a transaction tax. Since it is new tax only around for less than a year there is no word yet on how the fines or penalties will be applied, since no-one is yet late.
Only a few can get out of the property tax since it is waived for:

  • Shanghai Hukou holders (not foreigners or other Chinese)
  • First home only & less than 180m2

Can’t side contracts reduce tax?

They can, but it isn’t legal. Let’s be very clear – there is no legal way to reduce the stamp duty or profit tax. None. There is considerable creativity in China however and I’ve heard many stories of side contracts with a lower price to be shown to the government transaction centre to help reduce tax. This is essentially fraud and can result in at least a fine, possibly more, if you are caught.
The government knows about side contracts.

Also keep in mind, the government knows this trick. They have unofficial guidelines on expected property price for many apartment complexes or locations and if your contract (real or side) is below these the transaction centre may fine you or calculate the tax based on their estimated value, depending on the official facing you across the desk. Be warned.

One last thing

The final thing to remember is that the property tax isn’t part of the value of the house, so you can’t borrow this from the bank. So you need to budget for the taxes, as well at least a 30% down payment for the mortgage. More on mortgage applications next week. Till then and take care out there in those markets.



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