Broadly speaking, the new property laws in China aim to clarify the equal protection of state, collective and private property rights and define the ownership of land and residential property. There are several clauses especially relevant for foreign property buyers in China. One is the amendment affecting renewal of residential land use right. The new law stipulates that once the residential land use right (70 years) expires it can be automatically renewed. There are also amendments to the methods of compensation for expropriation of property, and laws bringing about compulsory registration on pre-sold property to avoid the seller double-selling.

The new property law in China complements other recent laws, such as Circular 171 which became affective on 1st July 2006. This Circular set out guidelines and regulations associated with the involvement of foreign parties in both the commercial and residential sectors.

Chris Brooke, Beijing-based representative for CB Richard Ellis, explains the significance of the new law as follows: "Any investment in commercial property in China now needs to be undertaken via an on-shore registered company and the investment must involve at least a 50 per cent equity contribution to the acquisition. In terms of the residential sector, the new regulations stipulate that foreign property buyers seeking to acquire residential units must have lived in China for at least one year, and that the unit being purchased must be for self use. If the buyer does not satisfy these criteria, acquisitions must be conducted via an on-shore corporate entity."

On the whole, these new laws are believed to have made China more attractive to foreigners considering buying property there. As Brooke notes: "Although there may be some negative impact upon short-term returns as a result of the tax obligations associated with the establishment and utilisation of on-shore entities for investment purposes, longer term rental and capital growth rates are expected both to increase and be more sustainable going forward."

Where should investors encouraged by these property developments in China look to invest? Richard Nunn of Property Frontiers recommends the following: "Shanghai [pictured] remains a good choice. A number of secondary cities, such as Chongqing, Chengdu, Qingdao, Dalian, Wuhan, are also recommended to pioneer property investors."
 
There are also opportunities to secure high returns within the industrial and logistics sector in more developed cities along the eastern coast of China. In addition, there are a number of resort areas worth considering such as Hainan Island and Kunming in Yunnan Province.

In terms of safe investment when buying property in China, according to Brooke "Grade-A offices in a prime location in a major city are probably your best bet. Safe residential investments can also be found in the major cities of Shanghai and Beijing. However, stock of this nature is becoming increasingly rare."  

In terms of budget, Brooke says that "to meaningfully carry out commercial property buying in China, an investor would need a minimum of US$50 million to purchase in the commercial sector. Individual residential units or commercial premises can be purchased from US$250,000 upwards."

For those considering investing in property in China, Brooke points out that there are several key factors to consider. "These include, location which relates to the future development of a city, the legal and tax requirements associated with acquisition, quality of any product, and the proposed arrangements associated with the future management of an asset/development."

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Article first published 17 April 2007