Second Hand Property Transactions in China

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The real estate market in the first tier cities of China remains red hot. While the Chinese government recently issued several new policies to control soaring house prices, even they cannot extinguish the fire that is the of passion to buy houses. 

The fact is that house prices in China continue to soar. For those who cannot afford the price of a newly-built apartment, a second-hand alternative becomes their first choice. Compared to newly-built real estate, second-hand represents a much better cost-efficiency.

However, tumultuous second-hand house transactions sometimes cause trouble. Not every buyer can smoothly close the deal. Trade is always accompanied by risk while the amount of real estate business contract litigation continuously increases.

When you buy a second-hand house, you need to pay attention to the following points:

(i) Basic Situation of the House
Under normal conditions, a seller always has a housing mortgage, for different reasons. As a buyer, we should be very concerned about the basic situation of the house, especially that regarding the mortgage. Only unsecured houses are qualified for transfer in the Real Estate Trading Centre, which means the seller shall ensure to release all the mortgage(s).

(ii) Risk of Seizure by Court
All the contracts have been signed, the documents needed for Real Estate Trading Centre have been submitted, it seems everything is going well. You only need to wait for the Real Estate Trading Centre to finish the transfer within 15 days. Unfortunately, you are soon notified that the house you want to buy has been seized by the Court. How is this possible? Note that during the processing by the Real Estate Trading Centre, the house is still under the seller’s name. The seller’s creditors may apply to a Court to seize the seller’s house at the a time when the property is without a mortgage. If this happens, you do not have the house-ownership; what you have is only creditor’s rights, meaning you can claim against the seller according to the house sale contract.

(iii) Seller Jumps Price
The sustained rise of real estate prices makes the seller break the contract which has signed with you. The seller refuses to perform the contract with excuses, such as not all of the owners signed, you did not complete the loan procedure or they just terminate the contract unilaterally.

How should you handle this situation? According to the Contract Law of the PRC, if the party that receives the deposit fails to perform the agreed obligations, it shall return twice the amount of the deposit. In order to reduce your losses, the best way is to stipulate a high deposit. If then, without reasonable ground, the seller breaks the contract, they shall face a significant penalty.

(iv) Preserve Evidence
No matter what kind of reasons you may have to buy a second-hand house, improving evidence consciousness for ordinary people is very important. Everything talked through need to be fixed in a written form, in case of possible future confrontations.

Consider hiring a lawyer to handle all the negotiations and procedures to ease your burden and decrease the risks. Take faith that every important asset investment shall be treated discreetly in your best interests.

Good luck in the Chinese second hand property market!

Disclaimer
This article is intended solely for informational purposes and does not constitute legal advice. Although the information in this article was obtained from reliable official sources, no guarantee is made with regard to its accuracy and completeness. For more information please visit dandreapartners.com or WeChat: dandreapartners.

 

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Legal columnist Carlo D’Andrea is Chair of the Legal & Competition Working group of the European Union Chamber of Commerce in China; Shanghai Chapter, Coordinator of the Nanjing Working Group of the Italian Chamber of Commerce in China and has taught Chinese law (commercial and contractual) at Rome 3 University. 法律作家代开乐担任中国欧盟商会上海分会法律与竞争工作组主席,中国意大利商会劳动集团的协调员与曾经在罗马三大担任企业咨询课程中中国商法、合同法的课程教授。

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