People in Shanghai love to talk about money and houses. Do you have a house? When did you buy yours? How much did you pay? Where is it?
These conversations are mostly in Chinese because it’s still not super common for people without a Chinese ID card to buy property in Shanghai. (This includes residents of Hong Kong, Macao and Taiwan.) Heck, it’s not even that common for people from outside of Shanghai to buy Shanghai properties in recent years, given the strict limitations on house ownership in our city.
But it happens! Long-termers, people who have money to invest, those who are married and wanting to settle down, people who have the luxury of getting rid of their landlord and even those scraping by with serious saving skills and the willingness to live outside of the inner ring road… they’re all buying apartments (or more specifically, the land use rights for 70 years).
Are they crazy? Here’s one argument.
We talked to real estate agents, lawyers and bankers to get a look at the general process, whether you are just curious or actually contemplating buying a place.
Step 1: Qualify!
Though city and district level regulations may differ, in practice foreigners and non-mainland Chinese residents can purchase one property after working and paying taxes continuously for one year in Shanghai. In this case a yearly property land use tax (3-4 percent) may be paid, but if you have worked and paid taxes continuously for three years, the annual property tax is waived, according to Michael Ding of Red Dragon Property. Separately, Jacky Lu of Insight Real Estate said the property tax could also be waived depending on price and size of property.
For potential buyer qualification you need to show your passport, residence permit, your employer’s business license, your stamped and approved work contract and income tax receipts which can be printed from the district tax bureau that your company is registered in. There may be other documents required as well, but these are the main ones.
For comparison, if you have a Shanghai hukou, each household can buy two houses. If you are a Chinese citizen with hukou from elsewhere, you need to be married and have paid social insurance in Shanghai for five years.
Step 2: Shopping!
Now the fun part: find yourself a real estate agent and start learning to count in the millions.
The average home price in September 2020 in the five central districts Jing’an, Xuhui, Huangpu, Changning, Hongkou was more than 110,000rmb per sqm for new houses from the developer, or about 74,000rmb per sqm for secondhand houses, according to real estate company Anjuke (these numbers are not perfect but not bad as a general guide). By neighborhood, secondhand houses exceed the average in Huangpu (92,000rmb per sqm) and Xujiahui (86,000).
So! That’s going to be about seven or eight million rmb for a 100sqm secondhand property — a two-bedroom place —if you want to live somewhat centrally.
Also! You cannot buy certain heritage properties, particularly in Old Xuhui or in Jing’an, that are designated as usage title properties, which can only be sold to people with a Shanghai hukou.
Step 3: Negotiate!
Keep in mind that many sellers list property prices that are net, a.k.a. do not include taxes and fees — which you will pay for BOTH sides, according to Jacky Lu.
That includes a real estate agent commission of 1-3 percent, purchase tax of 1.5 percent, a seller’s value added tax (functionally a capital gains tax) that is 5.31 percent of the difference between selling price and original buying price, and if the seller owns more than one home, an income tax of 2 percent. This is on top of other fees and taxes such as a deed tax and stamp duty.
Suddenly that seven million rmb bargain is going to cost a lot more.
But once you’ve settled on a price, you sign a letter of intent with a holding deposit, known in Chinese as a xiaoding jin (小定金). For a 10-30 million rmb house, the xiaoding shouldn’t be more than 100,000rmb. Then you sign the sales and purchase agreement which outlines a timeline for when the second deposit, known as the da ding (大定), and/or the final payment with a mortgage is due. The second deposit is typically up to one million rmb, according to Michael Ding.
Step 4: Get the Money!
Yes, you can get a mortgage in China. However, you can get one from either a Chinese bank or an international bank registered in China, like HSBC or Standard Chartered. It’s a common practice to apply to a few banks and take your best offer.
Strap in for a lot of grown-up talk:
Mortgage loan interest rates are set by the National Interbank Funding Center for all banks. In Shanghai it is now 4.65 percent, adjusted monthly or yearly, for first time mortgage applicants for loans in RMB, with a maximum loan term of 30 years.
For non-mainland Chinese citizens, a mortgage loan can also be taken out in a foreign currency (typically USD or HKD) at international banks. This can be practical because foreign passport holders can convert any amount of their after-tax salaries into a foreign currency. A foreign currency loan can have lower interest rates, according to Tony Zhong of HSBC. For example, HSBC’s current offer for USD mortgages is right around 3.4 percent, adjusted yearly. These rates vary by bank.
The threshold requirements at HSBC include applicants proving that their monthly after-tax salary is double the monthly loan repayment. The best mortgage loan you can get is 65 percent of the property sale price, so that means you’re paying a 35 percent cash down payment.
When we called Bank of China at the Jing’an Kerry Center, the best mortgage loan available was 60 percent of home price, meaning a 40 percent down payment. BOC only offers loans in rmb, and they also require you to prove that your monthly salary and is double the monthly repayment amount.
All loans regardless of the currency are limited by the length of loan plus age of applicant not exceeding a set number. Each bank sets their own number, but it is commonly 70. So if you are over 40 you can’t get a 30 year loan.
So How Much is This Going to Cost?
Let’s do a little math. Say you found the perfect two-bedroom place near Zhongshan Park, and you negotiated down to a clean seven million rmb for the apartment.
You could take a loan from Bank of China, to use our example, and your numbers would look like this:
You are paying: 7,000,000rmb
Your down payment is 40 percent
You are paying a down payment of: 2,800,000rmb
The interest rate is: 4.65 percent
Your loan lasts: 30 years
Your mortgage payment is about: 21,700rmb per month
Or you could take out the loan at an international bank, assuming you qualify, and your numbers would look like this:
You are paying: 1,000,000usd
Your down payment is 35 percent
You are paying a down payment of: 350,000usd
The interest rate is: 3.4 percent
Your loan lasts: 30 years
Your mortgage payment is about: 20,200rmb per month (2,883usd)
Now compare that price to rent prices on our Housing page. Suddenly that 15,000rmb rent for the same place doesn’t seem so bad, does it?
Step 5: Pay Up!
You sign your life away through an online system while you wait for the mortgage to come through. And then, at the end of this road is the all-important transfer of the title certificate, done at the real estate exchange center. Congratulations! You now own a house (or rather, own a piece of paper promising to pay the bank back until one day — one day! — you will actually own it outright!).
Then you’ve done it. Look at you, you proud homeowner. Now you can find a moving company, immerse yourself in neighborhood committee politics and make the difficult decisions like where to put the couch. Oh, and about how much to spend renovating the place. Don’t forget the renovation!
Step 6: Plan!
When you buy a property, you are actually buying the land use rights for 70 years. This is the extent of private ownership in China, though it is in practice closer to ownership. Once that expires, the laws say the title certificate is renewed, according to real estate lawyer Owen Ren of King & Wood Mallesons.
When you sell a property, you can transfer the money out of the country, but it needs to be all in one go.
Under current laws foreigners are allowed to buy one property for personal use. Renting out their property still falls in a legal gray area. When buying a property, you must sign a document saying the house’s purpose is for you to live in, but in practice, many people do lease out their properties. At long last, you can be your own landlord.