A Guide To Selling Your Property In China 

A Guide To Selling Your Property In China.

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Introduction

Thinking about selling your property in China as an expat owner? What steps must non-Chinese citizens take in order to sell their properties in China? What legal services may an attorney offer in a foreign real estate transaction?

This article will briefly present thirteen steps of selling your property in China as a non-Chinese citizen.

13 Simple Steps to Selling Your Property in China

1. Listing the Property

Property seller in China always list their houses with real estate agencies in the neighbourhood because there is no national MLS to encourage the selling of properties there, unlike in North America.

These real estate agents will advertise the houses online and via their office windows. This is an efficient method of advertising since Chinese buyers frequently visit the neighbourhood where they want to purchase a house to learn more about available listings.

Realtor firms sometimes demand exclusive listings with their business. By “exclusive,” it is meant that other real estate companies cannot market the properties directly for the owners or seller; instead, other companies must collaborate with the exclusive real estate company to sell the properties.

The benefit of this exclusivity agreement is that the owner doesn’t have to deal with numerous realtors who can be a hassle by making too many phone calls before picking up the ultimate buyer.

On the other side, the drawback is plain to see: seller would not be able to locate the best offer through the exclusive agent, who might purposely depress the price in order to close the sale quickly.

2. Examination and Verification

At this point, both the buyer and the seller must complete assessments to ensure that they are qualified to purchase the property in their respective locales. The buyer must confirm that they are qualified to do so, and the seller must verify that the property is actually theirs free and clear of any liens.

3. Sign an Engagement Letter or Letter of Intent or Three-Party Preliminary Agreement

You will always be fortunate to have a few prospective buyer come up out of hundreds of calls from various agencies. Realtors often request a small earnest money deposit from potential buyers (between RMB 10,000 and 50,000, depending on the overall sale price), after which the realtor will propose the offer to the seller.

Hire a lawyer to assist you in selling your property in China, find prospective buyers, and find interested buyer. In order to complete this stage, you must draft a power of attorney, give the attorney specific instructions, and give them permission to act on your behalf to resolve any pertinent difficulties in the transaction.

The local notary office in your country of residence must notarize the power of attorney, and the Chinese Embassy there must certify its authenticity.

A preliminary agreement is often signed by the seller, the buyer, and the real estate company if important terms are agreed upon (occasionally such terms may be as extensive as those in the final contract).

Before a formal contract is executed, this type of agreement is typically signed to secure the business through legal writing. The agreement provides for this time cushion since the buyer may occasionally require a little extra time to prepare the down payment amount.

Even if this agreement is not accepted by the local real estate registration authority in order to transfer the title of the property to the buyer, courts will enforce it nonetheless if one party violates its terms if it contains all of the key terms for the sale of the property.

Be informed that such a preliminary agreement might not be required if the buyer and seller can quickly agree on all the parameters and the buyer is financially prepared to start the deal.

4. Sign the Official Sale and Purchase Contract and Supplementary Agreement

After the preliminary agreement is signed, it often takes a few days or a few weeks for the parties to sign the official sale and purchase contract to seal the deal.

Negotiate a sales contract and deposit agreement with the buyer; the buyer will then be responsible for paying you the deposit. The owner’s ID card and the certificate of property must be prepared at this point.

It will be important to have the power of attorney if the property owner is unable to attend. Furthermore, if a married couple shares ownership, documentation of the parties’ mutual decision to sell the property is required.

The local real estate authorities have an official sale and purchase contract that must be used in practically every municipal city in China in order to transfer the title to the new buyer. The goal is straightforward: by standardizing transaction conditions and speeding up the deal procedure, the real estate registration authority will save time processing each deal.

However, in practice, odd situations sometimes arise that such formal contracts do not fully handle, necessitating the execution of a side supplement agreement at the same time as the formal contract. Such a supplement agreement frequently has the following clauses:

• Lowering the price in the legal contract. To assist both parties in reducing their tax burden, the parties frequently agree to cut the price in the formal contract, which is the price for the governments to collect taxes on both parties.

Of course, the parties cannot go too far in inserting an absurdly cheap price in the legal contract, because local tax authorities always have their own benchmark pricing for each property in their jurisdiction.

As a foreign owner selling your property in China, it is not normally encouraged to do that since it would reduce the amount of money the foreign owner may repatriate out of China.

• Tax payment. It is very common to arrange for the buyer to pay the taxes that are due to be paid by the seller and deduct the same amount from the sale price in order to spare foreign owner’s the inconvenience of having to ship money back to China to pay their half of the taxes.

• Offshore contract price settlement. In a strict sense, it is not allowed to settle China-related transactions using international exchanges located outside of China. 

However, on occasion, foreign seller may require foreign exchange funds to pay off their mortgage loans for their China properties denominated in USD, and when buyers have some foreign exchange funds outside of China, it is always prudent for the buyers to assist the seller in paying off the mortgage on their properties first as required by law.

• Property turn-over. Though in most situations, seller would only hand over homes to buyers after receiving full payment for the properties, buyers may seek an earlier handover for the purpose of early refurbishment. The parties may choose to include additional clauses for such unusual arrangements.

There might be various grounds for such supplement agreements.

5. Register Online

A mandatory step mandated by the real estate management department is online registration following the execution of a formal property sale contract. Following this registration, a property may never be sold more than once, hence reducing the possibility of “one home, two sales.”

6. Payment

If the buyer makes a complete payment

The buyer must send funds to the seller’s bank account when the seller opens a Chinese bank account. Until the name change procedure is complete, the bank will temporarily stop this payment.

If the buyer takes out a loan to pay

The buyer must submit an application for a mortgage loan from the bank and deposit the down payment into one of the bank’s supervision accounts. Before changing the property’s name, the seller must make sure that the bank has authorized the aforementioned mortgage loan application.

7. Buyers applying for a bank loan

Though the buyer need to have inquired about the availability of a bank mortgage loan with their banks, the process won’t begin until the formal contract has been signed. The parties will only apply for title transfer at the real estate registration center if the buyer’s financing has been authorized by the bank.

The approval and honor of the loan by the banks are important when a buyer wants mortgage loan financing from the bank. In reality, very few banks really default on the loans they have granted. The seller should feel confident proceeding to transfer the title to the buyer once the bank has authorized the financing.

Real estate contracts often indicate that any gap between the bank-approved loan and the purchase price must be made up in cash by the buyer before or on the day the title is transferred.

8. Seller paying off the properties’ mortgage loan

As was already noted, in order to sell a home, the seller must pay off any outstanding mortgage loans on the property in question. Therefore, seller must submit a prepayment request for their outstanding mortgage debt following the signing of the formal property sale and purchase contract.

Although the Chinese Civil Code now permits the transfer of homes with mortgages still in place, it is unclear how the banks would respond to these new regulations. The seller’s transfer of title does not, however, immediately transfer the mortgage obligation to the buyer according to contract law. Therefore, banks may only demand that the seller make a prepayment on the existing mortgage debt before the title may be transferred.

9. Transfer of Title

It is time for the parties to apply to the local real estate registration center to effect title transfer to the buyer when the down payment is made upon signing the legal contract, the buyer’s application for a mortgage loan is authorized, and the seller’s existing mortgage is deregistered.

This is frequently an issue that causes fear and concern for foreign owners of properties in China. They find it hard to comprehend that they are suddenly giving the buyer the title to their homes before they have received the complete purchase money.

Many foreigners who are familiar with the customs of their home nations find it to make sense, although circumstances vary depending on where you are in the world.

10. Changing the property’s name and paying taxes.

To change the ownership of the home, the seller/your attorney and the buyer must both visit the neighborhood Real Estate Transaction Management Center.

You (the seller) may be required to prepare the Power of Attorney, the appropriate certificate of notarization or authentication, a certificate attesting to your home’s ownership, your passport, or any other form of identification for the application of ownership change at this phase.

When selling your property in China, foreign owners must additionally pay the applicable taxes. In this transaction, you must pay the appropriate taxes, including the sale tax (about 5% of the entire selling price), the stamp tax (around 0.05% of the whole selling price), etc.

11. Getting a Real Estate Certificate

If the buyer borrows money to acquire the property, registering the mortgage will be necessary after getting the real estate certificate; only then will the bank loan the necessary portion of the mortgage.

12. Release of banks loans to seller

If the buyer uses a mortgage loan to fund the acquisition, the agreement has not yet been completed since the seller has not received the entire purchase price.

Only once the property has been mortgaged (hypothecated) to the bank are banks allowed to disburse the loan funds. In the event of a bank fail, the buyer owes the seller money.

The release of the mortgage loan cash collected by a buyer in such a property sale is now the problematic portion. The buyer applies for the mortgage loan, and often the buyer is the one who receives payment.

In reality, the loan funds don’t stay with the buying borrower for very long before being quickly remitted to the seller after entering the buyer’s account. To put it another way, the buying borrower has no control over the funds in his or her account until they are transferred to the seller.

The seller may be certain that they will get the mortgage loan funds on schedule in this sense.

13. Turnover of Property

After getting the bank loan, the seller must pay off all property costs (such as property management fees, water and electricity payments, etc.) and give the buyer the keys.

The following categories of legal services are offered by a qualified attorney in a real estate transaction involving a foreign country:

• Assisting foreign seller (hereinafter referred to as “clients”) to manage and complete the entire transaction process, including taking part in the negotiation of a sale contract with the buyer, reviewing the contract and any other relevant documents, and advising clients on legal matters as they arise.
• Offering a legal opinion letter and assessing pertinent legal risks.
• Resolution of Disputes, which includes resolving a disagreement resulting from a real estate transaction, creating and submitting a Letter of Demand, representing clients in court or in arbitration, etc.

After the seller has received the complete purchase payment, it is finally time to transfer ownership of the property to the buyer.

The payment of a land grant fee to the local government can be a more problematic issue in some real estate transactions, such as the sale of garden villa properties in Shanghai, and is a task that is seldom handled by most agents. We won’t go into great detail about it here because it is just exceptional.

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Adam is an internationally recognised author on financial matters, with over 760.2 million answer views on Quora.com, a widely sold book on Amazon, and a contributor on Forbes.