Buying a house in Shanghai can be an incredibly confusing experience. We ask an expert for some practical advice on how to go about securing your finances.

By Scott M Barrack

Acquiring a bank loan has become a much more involved process than it was in the past.
China’s incredible growth in recent years has raised concerns of an overheated economy. A number of industries began to grow rapidly, and the real estate sector was not left behind. As a result, assessment companies have started evaluating first and second hand properties at rates much lower than current market prices. Banks have also tightened their loan approval and lending policies, making acquiring a 70 percent loan on a second hand property nearly no longer possible.
The upside of strict approval requirements will be a market of qualified buyers and thus a more stable real estate market. The major downside is that a higher down payment is now required for purchasing second hand property and loan procedures are more complicated.
Savvy investors still see a seriously undervalued old property market. Overseas buyers also understand that the costs of buying property in Shanghai are still much lower when compared to overseas.
Much of this stems from the fact that Shanghai’s capital gains taxes are much lower than most industrialized markets.

Old property
Differences arise when it comes to buying old or new property in Shanghai. The average loan amount for an old property is 50 percent.
The traditional 70 percent was reduced to 60 percent or 50 percent and although most local banks advertise loans of 60 to 70 percent, the fine print specifies the loan amount is based on the assessment value, not the sale price.
While foreign banks are also starting to lend for old property to foreign buyers, they are not yet very experienced in lending on old property and are often learning as they go. In other words, expect the process to be slower and expect hiccups! The upside is that you will be able to speak English to your mortgage broker at the bank.
Whether they have any real knowledge to contribute is another thing all together.
Interest rates vary per case depending on the individual. Long term rates are float, based on the People’s Bank of China’s rate.
Most banks limit their lending terms to the age of 65 years. This means that if you are 55 years of age they will only provide a ten year payback period.

New Property
Bank loans of up to 70 percent can be obtained to purchase a new property. Both overseas and local banks can issue loans for new property, but overseas banks can only lend to foreign nationals.

Bank information
The seller must pay off any existing loans on their property before they can sell. Banks no longer transfer bank loans from seller to buyer and it is very unusual for banks to give bridging loans. In order to secure a bridging loan to pay off an existing mortgage, a guarantee company is required. However, this will only work if the buyer is also getting a loan. The guarantee company will pay off the seller’s bank loan after they receive a guarantee from the buyer’s bank that part of the buyer’s loan will go directly to the guarantee company. The service charge is about 1 to 4 percent of the amount loaned. This practice is also being pushed out of the market now as the government is trying to reduce risk banks are exposed to.
If there is difficulty getting a mortgage for a second hand property, you may also need to enlist a guarantee company. They can charge up to 2 percent (of the loan amount) for arranging difficult bank loans.
Both local and foreign banks require strong sources of proof of income. Tax receipts from your salary are the best.
Your income should be at least double your potential monthly mortgage payments. If your mortgage payments are 10,000 yuan (US$1,234.56) each month you will need to show proof of income of 20,000 yuan.

How to proceed with financing after you find a property you are interested in?
A copy of the property title should be sent to an assessment company for valuation, which, when complete, will need to be sent to different banks. Banks will give preliminary approval once they receive your proof of income and other materials. Official approval and the bank loan contract will only be stamped by the bank after an official sales contract is signed.
Most banks will not provide you with written pre-approval before you sign a sales contract so be aware and protect yourself within the contract or make sure your bank has approved you verbally. Some banks will allow you to sign a mortgage contract before you sign the sales contract. This is the safest method.
To apply for a bank loan you will need to provide:
* Proof of income in the form of tax invoices and bank statements 
* Proof of marital status (this can be provided by your consulate) 
* Passport copy 
* Visa copy
* Copy of your residence book
Your loan will not be approved if you can not provide the information required. If your tax receipts are from overseas you may need to have them notarized by your consulate. Please note that banking policies change frequently so you should check with your agent before hand to confirm new regulations. Every bank has very different policies and they change very often so it is very important to do your due diligence and check with as many banks as possible.

 
(The author is a director at space international — www.space.sh.cn)