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Overall Real Estate Environment Traditionally under communist rule, housing was provided at very little cost and individuals belonged to work-unit collectives of State-owned enterprises. As the government opened the economy in the late 1980s, it introduced land reforms - individual ‘ownership’ was made possible through the transfer of ‘land-use rights’ in 1989.
The Chinese government has implemented several policies which have attracted millions of dollars of foreign investment in the real estate in past years, yet there remain areas of caution, which one would expect of any rapidly developing emerging market. These include changing laws and regulations, lack of standard industry practices, and limited transparency, for example, there is no formal MLS system in China. Nonetheless, the market has attracted millions of dollars from overseas and continues to see increased sophistication of supply in both residential and commercial sectors.
Property ownership development In China land is owned by the State. A form of private ownership is accepted through transfer of ‘land-use rights’ whereby land technically is still owned by the State and a holder of the land-use rights may lease the land for a certain period. Land-use terms vary according to use of the property and as a guideline are - 40 years for office, 50 years for industrial, and 70 years for residential.
In the mid-to-late 1990s in particular many domestic as well as foreign overseas Chinese developers (e.g. from Hong Kong and Singapore) acquired land-use rights to build residential and commercial developments. In the last two years, the market has attracted U.S. and European foreign institutional funds which are seeking investments in china real estate.
Individual Ownership Land-use rights can be re-transferred - so in the case that a developer completes a residential project and sells units to individual investors, land-use rights are re-transferred to the individual buyer. The term of the land-use right continues from the time of the original transfer and does not recalibrate from the re-transfer time. Property may be owned by two or more citizens or legal persons.
Residential properties are commonly delivered in bare-shell condition to individual purchasers, although this is beginning to change in Beijing and Shanghai. Standard lease agreements are 12 months and for shorter term leases, serviced apartments are a popular option. The government requires the use of a standard lease agreement (which is in Chinese) and that leases are registered with the real estate bureau.
The government continues to introduce legislation to develop the real estate market according to nation-wide economic goals. In 2006 in an effort to reduce speculation and price increases, government introduce regulation prohibiting foreigner individual purchases of residences unless for self-use and if they lived in China for over a year. Government has also modified capital gains tax laws in the last year. Also introduced was the requirement that all institutional purchases be made by onshore entities by entities legally registered in China (as opposed to offshore entities, which previously had been the vehicle of preference by foreign investors).
Mortgages Mortgages are provided by domestic and foreign banks for property purchases in China. Government has limited the number of mortgages individuals can obtain in an effort to reduce speculative buyers. Mortgage terms vary according bank but are generally from 5-20 years and generally requiring 30%-60% down payment depending on the applicant case.
Commissions For leases in general the market practice is that landlords pay real estate commission from 70% to 100% of one month’s rental to the agent net building management fees. Lease terms are 12 months or more. For shorter lease terms, serviced apartments are a convenient option. For first hand purchases, buyer pays 1% of total transaction value to the agent and for second-hand purchases the buyer and seller both pay 1% to respective agents.
Living in Hong Kong, China
Arguably the most international of Asian cities, with its historical Chinese origins and British Colonial past, the city encompasses the best of both worlds. It benefits from a free market economy and stable political system. Well-positioned for non-native speakers, all communications are bilingual, in English and Chinese (Cantonese), and supported by a highly sophisticated financial infrastructure and telecommunications network. With substantial foreign exchange reserves, a convertible and stable currency and simple tax system, the SAR is highly attractive to businesses looking to establish a base of support for their Asian endeavours.
From a living perspective, Hong Kong enjoys a very comfortable standard, offering excellent healthcare, myriad educational options for the international student, a comprehensive public transportation system. The biggest adjustment to expectations is needed when it comes to finding a home. A finite amount of developable land* means that Hong Kong’s density is an average of 6,460 people/km2. This translates to a mainly vertical and expensive existence, one where the average family dwelling is 400 square feet and 36% of the population resides in either public-housing or subsidized quarters. In this context, “luxury” housing averages between 1,200 to 3,500 square feet and offers a minimum of three bedrooms.
*Approximately 40% of land in Hong Kong is held by the Government as nature reserves and parks. While density can be high in urban areas, it only takes a few minutes to find open, green areas.
Real Estate Practices
Size is quoted in square feet and gross measurements; incorporating public areas and actual usable space is most likely 80- 85%.
The asking rental is quoted in HK dollars per square foot and is usually exclusive of building management/clubhouse fees or government rates and rents.
An initial deposit of one month’s rent is due on execution of the Offer letter. This is refundable in the event that a Tenancy Agreement is not executed.
Two to three months’ rent as a security deposit is due upon execution.
