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Real Estate Due Diligence in China

Real Estate Due Diligence in China

Updated on Wednesday 25th May 2016

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Foreign entrepreneurs who are interested in setting up their business presence in China often choose to invest in real estate industry. The Chinese property market has been developing rapidly over the years and consumer demand has risen in important Chinese cities. The solid growth recorded in this sector makes real estate a constantly evolving industry and businessmen are advised to invest here, but they are recommended to perform several actions when purchasing real estate properties in China, to verify their physical and legal integrity.
 
In order to make a safe investment, it is recommended to perform real estate due diligence procedures, which will provide relevant information on targeted property. The process includes not only making sure that the seller has set a correct price for the property, but also to verify if the documents of the property respect the legal provisions and that the building itself is safe for purchase and usage.
 
Our law firm in China offers real estate due diligence services for properties designed for personal use or for business purposes in China; the services can refer to the close verification on the main selling-purchase documents, but also on the integrity of the seller
 

Properties in China

 
Foreign direct investment in real estate in China has increased over the years and it is expected to maintain its growth. The demand is high for residential and commercial buildings and the rise in residential construction is expected to increase as the dynamics of the population are constantly changing. 
 
Foreign investments in real estate in China are regulated through a series of laws and regulations. The Chinese government has also taken measures to reduce speculative activities in the real estate sector and encourage the growth of the industry. Those who are interested in buying a property in China can receive assistance from our Chinese attorneys for the purchase procedure.
 
It is important to know that the Chinese legislation stipulates that due diligence procedures should take into consideration the following: 
 
legal due diligence;
financial due diligence;
technical due diligence.
 
The financial due diligence refers to the set of activities that are aiming at the verification of the accounting registrations, which can also be carried out on the corporate taxation; for example, the legal entity from which an investor acquires a new office may have carried out illicit operations; our lawyers can verify if the financial statements were registered in good faith and if the respective entity is liable for taxes it should have paid. 
 
Operational due diligence refers to the verification of the physical site of the respective company. 
 
Legal due diligence is extremely important for any type of purchase, regardless if it refers to an individual or a company. Chinese legislation forbids foreigners to purchase land in China; however, foreigners can buy the right to use the land. At the same time, it is important to know that the Chinese legislation allows foreign persons to acquire a property here. 
 
It is necessary to perform the environmental due diligence, as the report can state if the property is situated in a region with various environmental risks

 

Property due diligence in China

 
Before concluding any final purchase agreement, our Chinese lawyers can help the buyers with specific information on the property. The due diligence procedure for real estate properties in China includes the verification of the following issues:
 
- tenant information;
- operating/financial information;
- building information;
- any other relevant information.
 
The financial statements for the property will be thoroughly checked by our team to make sure that there are no mortgages on the house. The information on the building will target specific data, such as reports about the safety of the building, seismic risk, environmental reports or mechanical system reports. 

 

Real estate due diligence for investors 

 
Investors interested in carrying out business activities in China should perform a more complex due diligence procedure, which can include the following: 
 
verify if the market valuation of the building reflects its true prices;
a complete set of documents related to the ownership of the building;
specific lease terms;
legal guarantees prescribed by the law;
internal control. 
 
For information about the aspects of the real estate due diligence process, as well as for personalized information and costs, please contact our lawyers in China.   
 
 
 

 

Comments

  • Lisa 2016-05-16

    It is very important to receive assistance on this matter and to check the property very well before the purchase, regardless it will have a commercial or residential purpose.

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