Sell Chinese properties: what to do with the mortgage loan?

Though you may think otherwise of Shanghai property market, many people are starting losing confidence and thus selling their properties in China. The biggest sale is made by Asia No. 1 tycoon from Hong Kong, Li Ka Shing. He has sold several properties in Shanghai, indicating that he sensed a turning point to be coming soon.

But for individual foreign property owners, selling Chinese property is a complex process requiring personal attendance (a big headache of travelling multiple times to China) if they don’t have an agent to help them.  Things are particularly complex if the seller has not paid off the mortgage loan on the property prior to sale. If not properly arranged, an agent may not help in prepaying the mortgage loan and the owner may have to come over to China to do it on their own.

Here in Shanghai, to effect the prepayment of mortgage loan before sale, owners may have to book a date for paying off the loan at the bank counter half to one month in advance. At that date, you may have to carry your bank card and enter the password in order to complete the prepayment. In any case, you don’t want to give the card and password to your agent or representative.

You may think that once you wire money into the bank account  that has been used for paying the loan, the bank may simply deduct the money from your account and then it is done. But banks don’t do this. In other words, you must be present to effect and complete the prepayment of your mortgage loan.

There is one way to save you from having to come to China to attend to the prepayment: get your buyer to help you paying off the loan with the down payment payable under your sale contract.

Sale of properties in China can be time consuming for sellers esp foreigner owners who are no longer living in China. In many cases, you may have to come over to do it your own but it may be more advisable to entrust a local real estate attorney to help you with the process. It is extremely important to prepare a complete and sound power of attorney making sure major steps are covered in the POA.

Jason Tian

Jason Tian, senior partner, specializes in foreign-related legal services ranging from foreign investment in China, banking and capital, real estate, M&A, corporate, international trade, estate planning, inheritance and divorce at his blog: https://www.sinoblawg.com.

4 Comments

  1. Tom   •  

    Hi, dear jason. I am a foreigner who bought a flat in 2007 in beijing. During that time there was new regulation of some sort that i have to co sign with a chinese national. So i got my friend that time to sign with me (99% my name n 1% other. The property is still under morgage. What could happen if i would finish paying off the morgage, and sell the property? Btw is my second property thank you. Tom

    • Jason Tian   •     Author

      Hi Tom, is your Chinese friend rocking the boat? if not, you can get him to authorize me to sell the property at the time you authorize. as you have the mortgage loan on it, you will have to pay it off before you can sell it (purchase contract can be signed but title transfer cannot). You will have to arrange the money to pay it off either using the buyer’s down payment to pay the loan denominated in RMB or you get the money from abroad to pay off the loan denominated in USA. After the mortgage is cleared, there is nothing special in selling it.

  2. Prashi   •  

    Hi Jason, what if the mortgage loan is in foreign currency (for e.g. USD)? The property is registered with 2 owners – me (a foreigner) & my wife (a Chinese national). However, the mortgage loan is under my name and in foreign currency.

    How could the mortgage pre-payment be handled? I am asking since there seem to be lot of constraints/ limits around forex conversion allowed in a year.

    Thanks!

    • Jason Tian   •     Author

      HI Prashi,the practice of prepayment of mortgage loan may vary from bank to bank. You really need to talk to your bank in that regard. The foreign currency does not affect you much. With the mortgage loan contract in place, you are not subject to the USD 50,000 annual forex quota in China. Let me know if you further need my help on this.

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