Real Estate Investment
Written by jayshaw   

Foreign individuals who come to China to study, work or invest want to purchase real estate property to reside in, lease or rent. Foreign companies who come to China also want to purchase company offices, residential apartments or just purely invest in real estate. Purchasing property in China has significant benefits, especially as it is very likely that the value of the property will appreciate. Foreign investors are motivated to sell their real estate after a period of time, in order to realize their successful investments.

Obstacles facing foreigners who invest in real estate in China

The process of purchasing or transferring property in China for foreign investors is complicated, due to the various restrictions imposed by the Chinese government. The process of tax planning is extremely important because if this is done incorrectly, the results will be significantly different.

Moreover, purchasing property in China can give rise to many disputes. The restrictions on foreign individuals may cause confusion for investors as to whether or not they can purchase property in China. Even though some foreigners cannot purchase property in China, the reality is that most can. This kind of confusion and misunderstanding can lead to some disputes, for example:

Some foreign investors purchase real estate in the name of Chinese citizens because they mistakenly believe that they cannot purchase property in their own names.  Disputes may then arise between the real owner and the apparent owner because of misunderstandings and lack of cooperation in the long run. The foreign investor may want to get a mortgage, for instance, but the Chinese citizen may not cooperate. Furthermore, dishonest Chinese citizens may also be able to, albeit not without difficulty, use their apparent ownership to then realize the huge appreciation of the properties for themselves.

For such reasons, it is very important for foreign investors to retain experienced lawyers to guide them through the purchasing or selling process correctly. Jay & Shaw has helped a lot of foreigners to invest in property in China, and we will help make sure the purchasing and transferring of property runs as smoothly as possible.

The Difference between Commercial and Residential Property

This is a very confusing topic for foreigners. The most important points will be addressed below.

1. In China, all land is owned by the Government. Real estate development companies purchase land from the Government in order to build either commercial or residential properties. The development companies buy the usage of the land for a number of years. The usage entitlement period for residential property is 70 years and for commercial property it is 40-50 years. The usage entitlement period begins from when the development company buys the land from the Government. Having purchased the property, the buyer will only have ownership of the property for the remaining years of the usage entitlement period.

2. The real estate management fee, which is the fee to maintain the property and is charged by the service provider, is greatly different between residential buildings and commercial buildings. The real estate management fee is lower for residential properties and it is usually one fifth of the rate of commercial buildings.

3. The facilities fee, including matters such as water, gas and electricity which charged by the Government, is also different for residential and commercial buildings. Usually in commercial properties the facilities fee is relative to the services used, which can be 2-3 times higher than in residential buildings.

4. Most significantly, residential buildings can only used for residence and commercial properties can only used for office purposes.  

Restrictions on Foreign Individuals Purchasing Residential Property and How to Avoid These

What are the restrictions?

- Foreign individuals must have a work visa which is for a period of time of no less than one year.

- Foreigners can only buy 1 unit/suite.

- This unit/suite must be for their residence, and not for commercial use.

- Foreign individuals must sign an undertaking stating that they do not already own property in China which is for their residential use.

- Some foreigners believe that if you have a student visa for 1 year it will be possible to purchase property in China. This was previously the case, but not anymore. It is now only possible for foreign Chinese people and citizens from Honk Kong, Macau and Taiwan to purchase property on a student visa.

How can the restrictions be avoided?

- An individual is only required to have a work visa which is for 1 year. It is not necessary for an individual to have obtained a work visa for more than 1 year in the past. Having a visa for more than 1 year in the past will also not permit you to purchase property. For example, if you had a 1 year work visa in the past and now you are on a student visa, you will not be allowed to buy property.

- If a foreigner cannot purchase a residential building since he/she doesn’t have a work visa, he/she can still make the purchase by setting up his own company in China. The newly set up company, as a Chinese legal entity, is not subject to the said restriction which is only applicable to foreign individuals.

- Not only can the foreign individual purchase property by his/her newly set up Chinese company, but he/she can also apply for a work visa by the Chinese company in the excuse, and then he/she will be able to buy residential property.

Restrictions on Foreign Companies Purchasing Commercial Property and How to Avoid These

What are the restrictions?

- Foreign companies must set up a branch or representative office (RO) in China.

- Foreign companies are only allowed to purchase commercial properties.

- The property must be in the city in which the company has its registered branch or RO.

- The area of the property must not necessarily be 1 unit, but the overall area of the property must be appropriate to the company’s business needs.

How can the restrictions be avoided?

- Foreign companies are only allowed to purchase commercial property for commercial use and there are still many restrictions that apply when purchasing these buildings. However, if a foreign company decides to set up a company in China they will not be subject to these limitations. In these circumstances the establishment of a branch or RO will not suffice because they are not independent legal entities in China. The types of independent legal entities which can be set up are a Wholly Foreign Owned Enterprise (WFOE), Foreign-Invested Partnership Enterprise (FIPE) or a Foreign-Invested Joint Venture (JV). In addition, a significant advantage of establishing a WFOE, FIPE or JV is that it can also purchase residential buildings for residential use, with the excuse that these buildings are to provide residence for the company’s employees.

- The owner of a foreign company can apply for a work visa both by his Chinese branch or RO, or the Chinese WFOE, FIPE or JV. He/she will then be able to purchase residential property because he has a work visa.

- An exception to the rule that a foreign company cannot purchase residential property is that of a hotel-designed building. Although this is a commercial building, it is allowed to be used for residential use.

If you have any questions with regards to the above information on investing in property in China, or have any other related queries, please do not hesitate to contact us.
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