Buying a residential property in China is more straightforward than Bit used to be, but there are plenty of pitfalls to avoid. It remains much easier to rent a flat or villa but the price can be high even by international standards and the property is often located far from the central business district. Moreover, a monthly rental of US$4,000 does not necessarily include furnishings and household appliances, all of which goes some way to explain why many foreigners prefer to hire a suite in a business hotel.
In the 1990s the housing market was opened to private developers, with the aim of expanding the stock of affordable homes for China's ever-growing population. However, many complexes have been built which can only be afforded by foreigners or wealthy locals. China is more liberal than many other Asian countries in that it allows foreigners to own homes on its national territory. However, buyers should exercise caution since this is a developing market which is going through an experimental period.
Owning a home in China provides a level of comfort and convenience rarely found in rented accommodation. Prices for both are high, a consequence of the fact that demand still outstrips supply in most leading cities.
Rented flats invariably fetch ‘unreasonably' high monthly prices and usually have to be furnished at the tenants' expense. The tenancy agreement is likely to throw up many uncertainties and it offers little in the way of protection – for example, rentals can go up erratically while repair and maintenance are not always provided readily. On departure it is invariably costly to dispose of furniture and household appliances.
A company-owned flat or house takes care of these issues. Homes for foreigners tend to be located in specially-designated areas that afford a congenial – some would say sanitised – environment. Safety is a high priority, shopping amenities are geared to a cosmopolitan clientele and international schools may be in the vicinity. Population density is also relatively low.
Another excellent reason for buying a property is the prospect of value appreciation. The Guangdong market has held up well strong during the Asian market crisis and prices have not changed much over the past couple of years. Those who bought into one of those numerous Shenzhen high-rises during the booming 1980s have seen the value of their home multiply in 10-15 years. Similar rises have occurred all over China.
Legal uncertainty is the main drawback to buying a residence on the Mainland. The housing market has only recently been opened up to the private sector, although it is still largely controlled by institutional and government landlords. Municipalities are encouraging private developers to build real estate, primarily for sale to domestic buyers. Indeed, most newly-built high-rises target local Chinese. Since the authorities want to increase general ownership of home property, the quality standard of such flats is relatively low and unacceptable to most overseas Chinese and foreigners.
Flats built for Chinese nationals typically combine kitchen and bathroom facilities in one room. Units available for foreigners tend to have separate kitchen and bathroom and most of the plumbing and bathroom fixtures are imported. This partly explains why purchasing prices for such flats are higher than the housing built for local Chinese. For example, flats in Guangdong for sale to locals may be as low as Yn2,000 per square metre while a flat for sale to a foreigner in a similar building may fetch HK$4,000 (Yn4,285) per sq metre. The authorities ensure that overseas funds are used in buying property built for foreigners.
Developers need special permission to sell to non-Chinese and it is imperative to check that such a permit has been issued. An agent has to be employed in such a transaction and it is advisable to seek the recommendation of a developer. The agent will charge a small fee or a percentage seldom exceeding 1.5 percent of the sale price. If both the developer and the agent have representative offices in Hong Kong, it is quite likely that you are dealing with reliable people.
In Guangdong the foreign currency most widely used is the Hong Kong dollar, while elsewhere it is more likely to be the US dollar. Hong Kong dollar-denominated contracts offer easier terms for repatriation of foreign funds as you can insist on payments for the purchase of your flat or house to be made in Hong Kong. This should also be the rule when you sell the property.
Once the transaction has been completed it has to be authorised by a notary public. This will involve a half-day trip to this office and payment of a few hundred yuan to get the contract approved by the relevant local authority. A Chinese witness has to be brought along. This could be a member of your staff, for example, but if no one is available you will need to seek the service of a lawyer. Then, you will have to go through the formality of signing your name in Chinese. Many Westerners are not skilled in writing Chinese characters, yet if the signature is deemed easy to forge it may be worth-less from a legal standpoint.
Buying property in China involves paying a tax to be collected by the developer. The tax rate varies from place to place. Normally a number of government authorities also impose a charge but altogether the amount should not exceed 10 percent of the property's price.
In China only the fixed assets of a property are bought, the land on which it stands being owned by the government. The legal situation resembles that of a lease, which will normally last for 70 years. This is a short duration compared with some Western countries and the task of extending the lease at some future point has yet to be tested in practice.
It is also possible to buy premises on the open market from private owners, although this is a limited opportunity in such a fledgling market. The main advantage it offers is that you can see the completed flat as opposed to new premises that must be bought while the construction is ongoing. However, the drawbacks are formidable – the price is likely to be speculatively high, the lease will be closer to its expiry and purchasers will be asked to pay value-added tax in the region of 25-30 percent. In Shenzhen, sellers usually inflate the sales price by one-quarter in anticipation of this tax.
By contrast, VAT is not paid on buying a new home from a developer. Instead, buyers have to pay a first-time tax and related charges that should not exceed 6-7 percent of the sale price.
It is important to check a developer's permit for selling to foreigners. If they don't have this authority, the relevant local government department has the power to cancel the contract. Getting a refund in these circumstances is by no means straightforward.
In most cases your future property is still under construction when you sign the con-tract. A down-payment should be made, in the region of HK$10,000. The balance has to be paid in several installments but usually within a few months after signing and ideally with the last payment on the day when you wish to move into your home.
Unscrupulous developers have been known to fail to complete the property on schedule while demanding payment on time with any arrears accumulating interest. In other cases buyers discover after completion that the interior dimensions are smaller than the plans had indicated. Hundreds of Hong Kong citizens have taken legal action against Mainland developers and authorities, but without success so far.
Building quality frequently falls below international standards but efforts at improvement are evident. Instead of being made of concrete, walls are usually filled with bricks and have a thin covering of plaster or mortar. This makes it difficult to insert a nail in the wall for the purpose of hanging a picture. Insulation is frequently inadequate, which adds to power bills resulting from the need to run powerful air-conditioners and heaters. However, there are remedies. For example, a Sino-German joint venture company supplies double glazing at quite affordable prices.
Even though the bathroom may be equipped with imported fixtures, the water will often turn brown as the pipes carrying water to the estate are rusty and prone to leaking. Power outages are still experienced, although much less often now than a few years ago.
What's on the market?
Guangdong's integration with Hong Kong and Macau is a good reason to be based in this southern province. Its railway and road network have been upgraded to world-class levels and commuting is now a much easier prospect. With Macau's imminent return to China, more infrastructural development is likely. For example, a new railway line is under construction between Foshan and Zhuhai, the city bordering Macau.
The liberalisation of the property market has given rise to developments known in the US as ‘gated communities' – walled-in villages or resorts that are accessible only through guarded gates. These residential villages with 24-hour security are a new concept in China. They offer safety, comfort and seclusion combined with an agree-able lifestyle that incorporates housing and leisure facilities.
Housing units are built with the best local materials, although plumbing and household appliance items tend to be imported. How-ever the houses do not always meet stringent Western standards. Waits are typically much thinner and do not provide effective insulation. In some cases the buildings stand close to one another, compromising the privacy of residents. Still, the complexes listed below offer good value for money.
Plenty of accommodation is now avail-able for rent and for sale in apartment towers, particularly in the Tianhe district. For a greener and cleaner environment, you have to head out of town. Four prime locations deserve mention – Ershadao, Baiyun Shan, Country Garden and Harbour Plaza.
Two residential areas have sprung up in Ershadao, both offering villas and flats for rent or sale. This is an elegant setting and the houses are stylish and of above-average construction quality. The international business-men's club is within walking distance, while the Guangzhou Ramada Hotel is on the opposite side of the Pearl River. Two foreign schools operate here, one French and the other American. Residents, half of them foreigners, have access to private clubs, swimming pools and tennis courts.
The first drawback is the location, with a journey to Guangzhou railway station taking up to one hour. The second factor is price – more than HK$10,000 per sq metre here, although this is still considerably less than such a property would cost in Hong Kong, where prices of HK$80,000 per sq metre can be fetched.
One of the latest additions to the private housing market is Castle Hill Luxury Homes, a complex of villas in Baiyun district. It boasts its own school, medical clinic and huge sports centre featuring activities such as badminton, tennis, basketball, a golf driving range and outdoor swimming pool. The noise from the nearby airport does not appear to be a major nuisance, although driving to downtown can be a hassle. Flats cost in the region of HK$10,000 per sq metre while villas are about 50 percent more expensive.
Country Garden complex
Further out, between the towns of Panyu and Shunde, sprawls Country Garden. This is a resort of 2,700 households, the majority of which are villas and low-rise apartment blocks. The core of Country Garden was set up in 1992 around a large middle school, although the residential area has since been expanded. There are three clubs with all kinds of facilities including saunas, fitness studios, swimming pools, tennis courts, restaurants, a business centre and grocery stores. The management also runs a variety of shops including furniture and household appliance specialists.
Transport is well organised, with a shuttle bus leaving for Guangzhou every hour. Long-distance buses serve Shenzhen and Hong Kong at least twice a day.
Country Garden has been a stunning success and a second village of its kind is currently being constructed in nearby Panyu. The obvious disadvantage is its relative isolation, although a dozen German technicians working at a joint venture do not seem to mind commuting by car to Shunde.
Houjie is a small town near Humen and Dongguan, roughly half-way between Shenzhen and Guangzhou both of which are accessible by expressway. The town has two major attractions a beautiful reservoir and the Harbour Plaza Golf Club. Like many other resorts its architects have borrowed heavily from French design. A shuttle bus will eventually connect Harbour Plaza to Shenzhen and Hong Kong, though most residents will still depend on their own car. Further expansion is under way.
Prices at Harbour Plaza are among the lowest in Guangdong. A house of 163 sq metres and garden of 175 sq metres is being sold for HK$797,000, while a villa of 245 sq metres and garden of 370 sq metres is selling for HK$1. 13m.
Property in Shenzhen
Shenzhen does not contain any resorts and what little is for sale to foreigners is concentrated in blocks of flats within a rather densely-packed urban area. A block of serviced apartments has gone up close to the railway station.
Near the reservoir a complex of enclosed apartment blocks has been constructed and further expansion is currently going on. This complex, known as Sinoplaza, offers a club, swimming pool, tennis courts and kindergarten. The buildings show acceptable quality and design, and the asking price of HK$10,000 per sq metre is high but considerably less than what you would pay for a similar property in Hong Kong. In fact most buyers are from Hong Kong and there are thousands who commute between Shenzhen and the SAR. However road conditions between the complex and the customs post are chaotic.
Near Zhongshan is a resort to rival Country Garden, though it is nearer to Macau than Hong Kong. To compensate, there is a fast hovercraft service between Hong Kong and Zhongshan. Moreover it has the advantage of being located in the heart of one of Guangdong's fastest-growing areas – the west bank of Pearl River.
Roger Beaud is a Swiss national who has been living and working in Hong Kong and Guangzhou since 1994. Last year be bought a flat in Guangdong province. He is the author of A Job Hunter's Guide to China.