Property ownership in China

[jemmyell]

I would be very interested in having a dialog about buying property in China, with and without a mortgage, obtaining the the title, the kind of title obtained and any cases of resale for full value or for degraded value for lack of clear title.

 

I believe this is a vital issue for us here on CFL as many of us have a 'China retirement' gleam in our eye, if only part time.

 

GZBILL has very graciously started the topic, but it has been stated that thing differ regionally. So, it would be VERY GOOD to capture data from as many regions as possible based on actual experience.

 

I am in the process of buying a home in Jilin province, NE China. My Wife owns property in Liaoning province but has only a city government title.

 

Those are the data points I can share publically.

 

-James and Loving Candle and Daughter

Edited August 16, 2007 by jemmyell (see edit history)

[GZBILL]

I would be very interested in having a dialog about buying property in China, with and without a mortgage, obtaining the the title, the kind of title obtained and any cases of resale for full value or for degraded value for lack of clear title.

 

... but it has been stated that thing differ regionally. So, it would be VERY GOOD to capture data from as many regions as possible based on actual experience.

 

One confusing issue is that there are so many different types of property ownership in China and many different schemes under which one may come to own property. At one point in time, the vast majority of Chinese people came to own their homes through a cooperative venture based on being employed in a certain company -- usually for life. These people generally did not receive a title other than some kind of certification that the original owner of the entire complex (the company) has further divided its original rights in the property. Although there are few cases of people actually having this kind of property forced from them, there are serious long-term disadvantages because these titles are very restrictive in addition to not being afforded the same legal status as individual titles discussed below. Since this type of property ownership has disappeared in China, and since it wouldn't apply to us anyhow, I will not discuss that point.

 

As far as title goes, from at least 1999ish forward, only provincial land management bureaus can issue legal (or clear) title for individual ownership of residential or commercial use property in cases involving non-governmental entities. Whether or not small cities in certain provinces follow this rule is another matter in China, but if I were going to put up, say, $20,000 for a property (yes, I know this amount is absurdly low, but in many poorer areas this would buy a nice home), I would want to be assured that, especially as a non-Chinese citizen, I cannot one day arbitrarily lose my investment.

 

I have accumulated a number of properties not only in GZ, but also in Shanghai and Beijing as well as one smaller city of Guangdong Province. All the titles are identical to the one I scanned except for the colors. Some locations use green, some use red and some use both green abd red. They are all, however 7" by 10" books issued by the provincial land bureau (or equivalent in Shanghai & Beijing).

 

China has changed a lot over the past decade in many ways, but especially in terms of infrastructure. As a result, eminent domain has been used quite extensively by city governments in order to get the space needed for all the new roads, highways, schools and hospitals being built. Those with individual clear title issued by the provincial government are a) not very likely subjected to eminent domain and given much better compensation packages in the unlikely event they are subjected to government use of eminent domain. This is something one easily sees in bigger cities and a subject also constantly in the news here.

 

Generally speaking, I have found real estate to be a very good investment. Yes, you can probably earn a lot more buying local mutual funds, but because of the inherent risks involved it is better to diversify. Real estate is a good option, if done wisely. Besides, everybody needs a place to live. It's not like in a land of over 1.4 billion people and limited land resources that property demand will lower.

[jemmyell]

Bill, thank you so much! I hope we can get a number of datapoints from different regions and different experiences.

 

-James

[Tony_onrock]

There are a few types of real property ownership:

(1). State land grant. Now this kind is the one that is fully recognized. It is a term ownerhip, with 70 years for residential, renewable automatically at expiration for 70 years at a time. 50 years for commerical and parking, 40 years for office, hotel etc. You get a property title which is recorded with the local Real Property Transaction Center (like the county recording office). This title is protected by the new property law etc and can not be taken without compensation.

(2). Collectively owned land. This is really the farmer's land, either farming land or their allotted land for housing. Thus far, it is not transferrable and title is not protected in either sale or when the state tries to take it if transferred to some one other than the one who is alloted. It is commonly known as small title. There are some talks about granting such ownership formal title, but thus far it is still not legally recognized. So you will see that some of these apartments selling for only a portion of the market price.

(3). "Publicly owned rental property". This is a relic of the old system. The unit or place you live in that is granted by the government in the past and can even be passed on to children. The rental is norminal. There is no title, but with a occupancy right almost as strong as title. Most of the old houses being taken down are these types and the developer has to pay a lot for them.

As foreigners, only type one is advisable for purhase, as it is freely transferrable and can be mortgaged.

[GZBILL]

There are a few types of real property ownership:

(1). State land grant. Now this kind is the one that is fully recognized. It is a term ownerhip, with 70 years for residential, renewable automatically at expiration for 70 years at a time. 50 years for commerical and parking, 40 years for office, hotel etc. You get a property title which is recorded with the local Real Property Transaction Center (like the county recording office). This title is protected by the new property law etc and can not be taken without compensation.

(2). Collectively owned land. This is really the farmer's land, either farming land or their allotted land for housing. Thus far, it is not transferrable and title is not protected in either sale or when the state tries to take it if transferred to some one other than the one who is alloted. It is commonly known as small title. There are some talks about granting such ownership formal title, but thus far it is still not legally recognized. So you will see that some of these apartments selling for only a portion of the market price.

(3). "Publicly owned rental property". This is a relic of the old system. The unit or place you live in that is granted by the government in the past and can even be passed on to children. The rental is norminal. There is no title, but with a occupancy right almost as strong as title. Most of the old houses being taken down are these types and the developer has to pay a lot for them.

As foreigners, only type one is advisable for purhase, as it is freely transferrable and can be mortgaged.

 

1. Not always 70 years, but sometimes 60. Is not automatically renewable even under the recently passed revised property laws. Everybody assumes it will be, but nobody knows because nobody has reached the 70 or 60 year mark yet. This kind of title must be issued by provincial land bureau, although municipal land bureau has say in whether term is 70 or 60 years.

 

3. In that this type refers to housing given to government employees under the iron ricebowl system, it is not assignable to heirs. When the original beneficiary and his / her spouse passes away, the local government or original work unit can repossess the property. It happens in Guangzhou, Beijing and Shanghai, but in smaller cities maybe they don't enforce it. It cannot be sold, but may be rented out on a very long-term lease to others.

[rogerluli]

On the resale front I just found this info. We were originally told that our property COULD NOT be re-sold before 5 years but such is not the case. But if you do sell before 5 years of ownership there are 2 taxes that will kick in.

 

Commerce tax - 5.55% of original sale price (exempt if more than 5 years of ownership)

 

Profit tax - (sell price - original buy price) x 20% (again only if less than a 5 year period of ownership)

 

So these are pretty hefty penalties instituted to try to slow down flipping properties and the subsequent rampant escalation of housing prices which does hurt average Chinese hoping to afford a house of their own.

[jemmyell]

On the resale front I just found this info. We were originally told that our property COULD NOT be re-sold before 5 years but such is not the case. But if you do sell before 5 years of ownership there are 2 taxes that will kick in.

 

Commerce tax - 5.55% of original sale price (exempt if more than 5 years of ownership)

 

Profit tax - (sell price - original buy price) x 20% (again only if less than a 5 year period of ownership)

 

So these are pretty hefty penalties instituted to try to slow down flipping properties and the subsequent rampant escalation of housing prices which does hurt average Chinese hoping to afford a house of their own.

 

Thanks Roger,

 

I am trying to get my wire transfer going now. So much conflicting information and nobody in the bank branches knows what they are talking about apparently...

 

-James

[GZBILL]

On the resale front I just found this info. We were originally told that our property COULD NOT be re-sold before 5 years but such is not the case. But if you do sell before 5 years of ownership there are 2 taxes that will kick in.

 

Commerce tax - 5.55% of original sale price (exempt if more than 5 years of ownership)

 

Profit tax - (sell price - original buy price) x 20% (again only if less than a 5 year period of ownership)

 

So these are pretty hefty penalties instituted to try to slow down flipping properties and the subsequent rampant escalation of housing prices which does hurt average Chinese hoping to afford a house of their own.

 

There has been talk of using taxation as a means to cool the property market, but the taxes mentioned have not yet been implemented either in Shanghai or any other city.

[lou]

I would be very interested in having a dialog about buying property in China, with and without a mortgage, obtaining the the title, the kind of title obtained and any cases of resale for full value or for degraded value for lack of clear title.

 

... but it has been stated that thing differ regionally. So, it would be VERY GOOD to capture data from as many regions as possible based on actual experience.

 

One confusing issue is that there are so many different types of property ownership in China and many different schemes under which one may come to own property. At one point in time, the vast majority of Chinese people came to own their homes through a cooperative venture based on being employed in a certain company -- usually for life. These people generally did not receive a title other than some kind of certification that the original owner of the entire complex (the company) has further divided its original rights in the property. Although there are few cases of people actually having this kind of property forced from them, there are serious long-term disadvantages because these titles are very restrictive in addition to not being afforded the same legal status as individual titles discussed below. Since this type of property ownership has disappeared in China, and since it wouldn't apply to us anyhow, I will not discuss that point.

 

I do have a question about this point . I think my wifes sister

owns such property. The company her husband works for fell on

hard times years ago, after months of not being able to pay the

workers, they gave each employee a plot of land. Some people

constructed houses on the land and many just held on to it.

My wifes sister doesn't need it and wants to sell it, my wife

wants to buy it.

 

I explained to her many of the things that you shared here, (Thank

You)! She understands the different rules because her family

works in real estate and she tells me everything is legal.

 

It's not a lot of money, the sister is giving the land to her for

many favors done in the past and my wife will accept and give

her a token monetary gift. I just want to make sure she's not

stuck with land that she can do nothing with.

[GZBILL]

There has been talk of using taxation as a means to cool the property market, but the taxes mentioned have not yet been implemented either in Shanghai or any other city.

 

I misspoke on the above comment.

 

The central government has given each local government the option of implementing these two taxes. So far, they have only been implemented in one or two districts in Shanghai and nowhere else in China.

 

My apologies for the confusion.

[GZBILL]

I would be very interested in having a dialog about buying property in China, with and without a mortgage, obtaining the the title, the kind of title obtained and any cases of resale for full value or for degraded value for lack of clear title.

 

... but it has been stated that thing differ regionally. So, it would be VERY GOOD to capture data from as many regions as possible based on actual experience.

 

One confusing issue is that there are so many different types of property ownership in China and many different schemes under which one may come to own property. At one point in time, the vast majority of Chinese people came to own their homes through a cooperative venture based on being employed in a certain company -- usually for life. These people generally did not receive a title other than some kind of certification that the original owner of the entire complex (the company) has further divided its original rights in the property. Although there are few cases of people actually having this kind of property forced from them, there are serious long-term disadvantages because these titles are very restrictive in addition to not being afforded the same legal status as individual titles discussed below. Since this type of property ownership has disappeared in China, and since it wouldn't apply to us anyhow, I will not discuss that point.

 

I do have a question about this point . I think my wifes sister

owns such property. The company her husband works for fell on

hard times years ago, after months of not being able to pay the

workers, they gave each employee a plot of land. Some people

constructed houses on the land and many just held on to it.

My wifes sister doesn't need it and wants to sell it, my wife

wants to buy it.

 

I explained to her many of the things that you shared here, (Thank

You)! She understands the different rules because her family

works in real estate and she tells me everything is legal.

 

It's not a lot of money, the sister is giving the land to her for

many favors done in the past and my wife will accept and give

her a token monetary gift. I just want to make sure she's not

stuck with land that she can do nothing with.

 

This situation is complex.

 

A lot depends on how the company initially obtained the land, who owns the actual land right use, who gave them the land right use and under what conditions land right use was granted to them.

 

As a rule, I would never purchase property unless I had clear title issued by the provincial land bureau as that is the only legal title available for individual residential use. Personally, especially understanding China, I would never make any exceptions.

 

If the property cost is low enough to be insignificant, then your risk is minimal. It might be an option just to buy it and keep your wife happy.

 

That said, nobody -- absolutely no exceptions -- can own land zoned for anything other than farming. All land -- with some limited exceptions for farming -- is owned by the state. So, I would wonder what kind of title the company had to the land that entitled them to pass off undeveloped parcels. Second, when you do buy developed property or land that is planned for development, you only actually buy the right to use the land for a certain period -- up to 70 years at most for residential use and a much shorter period of time for commercial use. Since the Communist government in China isn't yet 70 years old, there hasn't been any case of people actually reaching the time limits on land use so it is not possible to say what will really happen, but the current belief is that one will be allowed to renew their land use rights for a somewhat minimal sum of money -- assuming you have legal rights to use that land in the first place. Without legal title, all you have is a crap shoot.

 

In a lot of smaller villages, this kind of passing land from one person to another is common and most of the time there are never any problems. However, there are many cases of people getting involved in some unexpected circumstances and end up getting their property taken away from with little to no compensation. One such even happened when the government took land to build the Three Gorges dam. Millions of people were dispossessed of their land and almost every week in the news there were reports of people getting less than $100 in compensation because they hadn't legal title to the land and the government termed them squatters.

 

What I would do is purchase the property via a bank mortgage. The bank will not give you a mortgage unless they are certain there is clear title. If a bank will not give you a mortgage on a certain piece of property, go to Vegas because there you have a better chance of not getting screwed.

 

Otherwise, just ask yourself: "Do I feel lucky today?"

[rogerluli]

On the resale front I just found this info. We were originally told that our property COULD NOT be re-sold before 5 years but such is not the case. But if you do sell before 5 years of ownership there are 2 taxes that will kick in.

 

Commerce tax - 5.55% of original sale price (exempt if more than 5 years of ownership)

 

Profit tax - (sell price - original buy price) x 20% (again only if less than a 5 year period of ownership)

 

So these are pretty hefty penalties instituted to try to slow down flipping properties and the subsequent rampant escalation of housing prices which does hurt average Chinese hoping to afford a house of their own.

 

There has been talk of using taxation as a means to cool the property market, but the taxes mentioned have not yet been implemented either in Shanghai or any other city.

 

Well I'm sure I don't know every city in China but this is what we were informed is in effect for Hainan Island...