Catshanghai

We have just bought a house in Shanghai. We started looking for homes in March, but the whole process took us about a month after we found a place we wanted to buy. We were not in a position to buy a home in Shanghai until I had sold my house in the UK. Below is a step by step account of what we did and what you have to do to buy a house in Shanghai. It is accurate to the best of my limited knowledge.

Step 1 – Live in Shanghai (Does not apply to Chinese people)
Foreigners need to have lived and worked in China for at least a year. They also need to prove their status and income levels by providing old pay slips, work contracts and chopped or stamped company paperwork. Don’t throw these documents away.

Step 2 Raise the cash
Shanghai housing can often be as expensive as comparable properties in European cities. Downtown appartments are typically selling for 10000 to 20000 RMB per square metre. We suggest you get your money ready before you look for your dream home in earnest. Otherwise, the seller will laugh at you when you make an offer and go straight to the next person who is ready to pay.

You need enough money to cover the thirty percent downpayment. Shanghainese boys are expected to have a house as a precondition for getting married. This means that families spend years saving enough money for a deposit for their sons’ marital homes. Consider it a modern Chinese dowry.

Step 3 Find a home
Real estate agents will bend over backwards to show you properties, but some will listen to what you say and remain focused on requirements such as budget, number of rooms and location. Others will show you anything that comes into their office whether it is suitable or not.

It is possible to find English speaking agents, but the process is so complex and confusing that you will need a trusted local to help you navigate this minefield. My mother in law checked out the estate agent to make sure they were certified and qualified to sell properties. It really was a godsend to have someone worry more about getting ripped off than we were.

Also be aware that multiple agencies may market the same property and may not tell you they are asking for 50 000 RMB than the competition across the road.

There is no formal due diligence so you have to find out for yourself if local developers are planning to build a motorway through your living room. We had one agent take us to the Shanghai Urban Planning Museum to reassure us that no troublesome developments were scheduled in the neighbourhood. ( See: this earlier blog post )

This means that you have to accept a certain amount of risk when buying property in Shanghai. We were lucky to have friends in the architecture trade who looked at some houses with us for obvious signs of trouble. Low rise hutong style housing seems ripe for demolition so it is safe to buy in a place that is already well developed with tower blocks. Bear in mind that appartments are not made to last and they are given 70 year leases from when they were built.

Location was really important to us. We wanted to live downtown, but couldn’t afford prime real estate. We settled on the area near Nanpu Bridge and the fabric market, because it is a working class Chinese neighbourhood that was much more affordable than other central locations. We figure this downtown neighbourhood is not going to lose its value anytime soon, because Metro Line number 4 is coming here later this year and it is near the Expo site.

Step 4 – Make an offer
It is usual to pay the agent a nominal deposit of upto 10 000 RMB to show you are serious about buying a property. They will also start filling in forms and issuing fapiaos so it is important to keep a file of every single document anyone gives you.

The agent will make an offer on your behalf, which may or may not be accepted by the seller. If the first offer is rejected then you may decide to make counter offers until you agree a price. If the seller does not accept your bid then the agent must give you back your deposit, although you may agree to defer this while they continue to find suitable properties.

If the seller accepts your offer then the buyer and seller need to sign a contract formalising the transaction. At this stage, the buyer needs to pay another deposit of upto 50 000 RMB to safeguard the property. At this stage, the seller cannot pull out or they are liable to payback double the deposit. The buyer cannot pull out at this stage without losing their deposits. The contract will also specify the timeframe for completing the purchase. This can happen within a few days, but ours took a couple of weeks to allow for my funds to be transferred from the UK.

Step 5 – Sign the property contract
When the funds are ready, both parties need to sign the property contract agreeing to transfer ownership of the lease.

Step 6 – Transfer the downpayment to the seller
The contract is normally signed after the downpayment has been transferred to the seller, but ours happened vice versa because the bank refused to convert the fnds into Chinese currency without the property contract. It is also bizarre that the seller receives the downpayment (30 percent plus) before the mortgage can be setup, but this is what happens in China so you need to get used to it.

Step 7 – Get the contract approved by the public notary office
All the paperwork needs to be inspected and signed off by the public notary office. They check everything including payslips, your foreign experts certificate and workplace declarations. Representatives from the bank (Bank of China) also come to process the mortgage application and were even more rigourous. The bank will look at your income and agree terms of repayment. We applied for a five year mortgage and the interest rate is fixed at 5.89 percent so our monthly payments will always be the same.

We had to pay various administration and insurance fees totalling 6000 RMB.

Apparently, local people do not need to go to the notary office to jump through this hoop, but we have no direct experience of doing this any differently.

Step 8 – Open a new bank account
You need an account with the bank lending you the mortgage. In most cases, this will be the Bank of China. Opening an account is a simple process of going to any branch with a passport (Chinese people need ID cards).

Step 9 – Transfer ownership and pay stamp duty
When the mortgage application has been approved, the buyer, seller and agent need to go to the local real estate trading centre to complete the transaction. All the paperwork needs to be checked yet again and more forms need to be signed.

We also had to pay stamp duty or property tax of 1.5 percent.

We were also told that foreigners can only buy one property in China. That’s lucky, because I don’t have any cash to buy a whole appartment block at the moment.

When all of this paperwork has been completed, you will get a key to your new house.

Step 10 – Pay the estate agent
We paid our agent one percent. The seller paid another one percent. They earnt their money.

Step 11 – Transfer utilities
The buyer and seller need to take all their paperwork to local branches for gas, electricity, water and telephone utilities so they know who to address future billing statements.

It is possible to instruct the bank to make automatic direct debits to pay off such bills without having to remember to do it yourself.

Step 12 – Receive the deed
This is a document in dark green binding that proves you are the owner. You need this document to resell the property.

Step 13 – Redecorate and move in
Shanghainese people do not like to live in the property while it is being refitted and redecorated. It takes a month or two to complete the refit. We have hired a designer to manage this project and expect to move in at the beginning of September.

I will write about the redeocation project as it develops.