1.         What if I don’t have any RMB? Can I pay for the deal in foreign exchange in China? What I should I take heed to?

To buy property in China, you have to use RMB for the settlement of your deal. You cannot pay foreign exchange to the seller even though the seller is a foreign party. Generally, you need to open a foreign exchange bank account with an eligible bank (those designated by the central bank to deal with foreign exchange businesses) and wire your foreign exchange from abroad into that account and then apply for conversion of the same into RMB which will be directly paid by your converting bank to the seller’s bank account.

Bear in mind that as an individual, your annual foreign exchange conversion quota is USD 50,000 or the equivalent. If you don’t have sufficient RMB money for earnest money and/or down payment, you will have to take time to effect foreign exchange remittance and conversion, which may consume time. So make sure that in the relevant agreement and contract, you are afforded with sufficient time to do that so as to avoid breach of those legal documents.

2.         What documents should I prepare when I effect foreign exchange conversion into RMB with my bank?

(1)      the notarized sale or pre-sale contract for buying the property;

(2)      valid identity certification. Generally, your passport;

(3)      certification of valid employment or study program with a term of more than one (1) year; and

(4)      certification by governmental real estate department proving that the aforesaid sale or pre-sale contract has been filed with corresponding authorities. Such certification is available upon application to Shanghai real estate registration centre at the district level.

(5)      As an instrumentality for foreign exchange control, you must also obtain from the local office of SAFE (State Administration of Foreign Exchange) a paper bearing your deal information (equivalently, a government permit), without such a paper, banks will not concert your foreign exchange into RMB.

3.         What if the seller still has mortgage loan denominated in foreign exchange (for instance, USD) over the target property? Can the seller pay off its mortgage loan with the buyer’s down payment?

In such a case, the seller will have to discharge the existing loan and mortgage with his or her own money. Buyer’s down payment shall be converted into RMB before being remitted into seller’s bank account and under China’s current foreign exchange control systems, such RMB amount is not allowed to be used to purchase foreign exchange (in this case, USD) to pay off the seller’s existing mortgage loan.

It shall be noted that parties to property deals often neglect such issue when concluding the sale and purchase contracts which adopt payment structure as outlined in the preceding paragraph. Such neglect will often give rise to deal failure and probably dispute between the parties.

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