anacapamalibu

Having traveled to China many times I looked at buying a place there to stay and for sort of investment. But never did because the prices kept jumping around and places that are to western standards are expensive and risky.

But news now is pretty much forget it for foreign buyers.

Yesterday I watched the news, one of the rules is that the foreign individual buyer would be allowed to buy the property only after 1 year working or living in China
SHANGHAI: China, concerned that surging foreign investment in its real estate is fuelling speculation and pushing up prices, has prepared draft rules restricting foreign purchases of property.

Among other things, the rules would require foreign institutions or individuals buying Chinese property that was not for their own use to set up a China-registered company to handle the purchase. Minimum capital requirements would be imposed on such companies making larger purchases.
The draft, prepared by central government bodies and seen by Reuters on Friday, is expected to be discussed by local governments and regulators before the central government announces a final version of the rules at the end of this month or early next month, real estate industry sources said.
Other major rules in the draft are:
鈥 Foreign-funded property firms investing more than $US10 ($NZ16.39) million would need to have registered capital of no less than 50 per cent of the investment.

鈥 Foreign companies or individuals would not be allowed to buy residential housing that was not for their "own use or own habitation". The draft does not define this phrase.
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鈥 Investors with registered capital of less than 35 per cent of the total value of a project, or which failed to obtain a land-use certificate, would not be allowed to take out loans with domestic or foreign lenders.
鈥 Partners in foreign-funded property firms would not be permitted to guarantee fixed returns.
鈥 Transfers of projects or stakes in foreign-funded property firms, or their acquisition of domestic property companies, would need to be approved by the government.

Peter N-H

I think you're missing the point, which is not that these particular rules are being introduced at this particular time (and which can certainly be circumvented one way or another, as all rules in China can), but that arbitrary changes in the status of your property, in your rights over it, in the nature of any contract, in the costs of owning and running it, in repatriating any financial benefit from it, or indeed in the state of neighbouring property, common property, adjacent roads or other services, or any other matter affecting the value and habitability of your property (including price controls, rent controls, service charges, pollution issues, taxes, licences, fees, neighbouring construction, etc.) can change at any time in China if it suits officials at almost any level to do so and particularly if it will personally profit them to do so. The chances of being cheated in some way by realtor, developer, or management company are nearly 100%. And since contracts are meaningless and largely unenforceable, there will be absolutely nothing you can do about it.

Setting aside the whole business of government itself, there is only one industry in China more corrupt than the property industry, and that's the mining industry.

In short, it's was never a good time to buy in China, it still isn't, and it isn't likely to be during the remainder of your natural life.

Peter N-H
http://www.datasinica.com
http://peternh.blogspot.com

biggestbopper

Not to mention the fact that the Chinese government has announced various policies meant to rein in property speculation, suggesting that a price collapse may well be coming shortly.

The chance of collapse in Shanghai may be almost as great as the chance in San Diego! But SD has better weather.

anacapamalibu

That's good that the government is discouraging foreign property purchases.
Truely ....big brother is looking out for you.

moondog

At least, in theory, the policies you speak of are intended to prevent the collapse to which you allude.

As for the topic in question, at the institutional level, foreigners are increasingly active in the market. What's more, while China's markets may well have a long way to go before they reach they reach the maturity of --say-- Japan, IMO your money is much safer in China than it is in certain SE Asian markets.

Consider several points: 1) in the long run --crashes not withstanding-- the market is sure to appreciate because China is in the process of becoming a powerful economy; 2) those on the inside have an interest in maintaining capital flows and investment in order to sustain growth. Regarding #2, as long as you pick good local partners, I believe that long-term risk is minimal.

Given the RMB's anticipated appreciation, keeping some profits in-country in the form of real estate is a reasonably prudent strategy IMO.

Furthermore, if you don't want to assume a direct position, there are ample opportunities to broker deals for others that are intent on getting a piece of the pie.

anacapamalibu

It would be interesting to see, but this will never happen, disclosure by the government of the figures on foreign property purchase/investment in the residential sector.

I believe its just another "blame the foreigners" excuse to explain why common people can't afford to live in the desireable parts of the city they got kicked out of to build luxury highrises.

moondog

i suspect that number would be small potatoes because the only buyers that would be portrayed would be that minute slice of society that is comprised of expats who work for mckinsey and want to stock up on apartments for the hell of it. the vast majority of foreign real estate investment is conducted at a higher (for lack of a better word) level with the aid of chinese companies.

Taiwaned

It is now looking more and more like we would be moving to China for a couple of years. Instead of renting we are wondering about purchasing an apartment and selling it off when we leave 2-3 years later.

Is this possible?
Any serious risks?
Any recent changes in law?

anacapamalibu

I would think with the high property prices now its questionable if
in a 2-3 year time frame you would not lose money. Renting should
get you a better place for the same cost and no risk of depreciating value.


China’s average [property] price per square meter nationwide is quite close to the average in the US. The US’s per capita income is seven times China’s urban per capita income. The nationwide average price is about three months of salary per square meter, probably the highest in the world.

jiejie

1) Legally possible only after living here for one year. If you are ethnic Chinese, from Taiwan, etc, you may be able to circumvent this.
2) Serious risk of losing money. Actually, for a short period of time as you describe, it is quite likely that you will lose money after you figure in transaction costs/taxes/financing/etc.
3) Chinese gov't, as part of effort to keep propping up the residential real estate market, rescinded tougher rules on foreign buyers instituted back in 2006. Until end of this year, things are more relaxed for foreigners who want to buy. No word on whether this relaxation will revert back to restrictive on Jan 1.

As somebody with some experience in the Chinese real estate and construction market, I strongly advise you to NOT consider any purchase of property here, unless you are planning to reside in China in your purchase for a minimum of 5-6 years. Even then, you would have to be careful where you purchased and for what settlement price. Asking prices for property in major cities is unreasonably high, given the current economic conditions. On the other hand, rents are lower compared to a year or so ago, particularly for upscale properties of the kind you would feel comfortable in--this subset of the market is generally overbuilt. The best time to have purchased property for capital appreciation purposes in the first-tier cities was probably 2003-2005...after that, prices started escalating too much too fast.

Taiwaned

Thanks for the insight.

Is it possible to own a property and NOT be a resident of China? For example, if we were to purchase an apartment and live there for the duration that we are in China and then rent/lease it out for the long term afterwards.
We honestly do not know how long we will have to be in China. 2-3 years can balloon to 5-6 years maybe even longer.

Would that be a wise or practical plan?

jiejie

Officially, if you are a foreign passport holder you need a Residence Permit for China. And you must purchase in your own name, for use as your primary residence. You may not rent/lease it out. Foreigners who wish to purchase property for investment/income purposes must form a local company for this purpose and can then put the property in the company's name. This is the summary version of the official regulations.

As this particular set of regulations only came about in 2006, there isn't a large body of evidence yet on what happens when foreigners lease out their property for income and get caught. Up to about 2007, it was easy to take advantage of bureaucratic chaos and get lost in the shuffle, since there was not a lot of coordination between property offices, tax bureau, immigration/visa/police authorities, etc. However, now there is computer interconnection between these systems, so if the Chinese choose to cross-connect all the dots, they could with reasonable ease find out which foreigners are owners, residents, renting out to others, etc.

Those who are ethnic Chinese and have Hong Kong or Taiwan residence papers have a little bit different set of rules applied to them (officially or unofficially) and have more leeway.

You must consider the fact that RMB is not a convertible currency and is not likely to be in the foreseeable future. This has implications for how you pay for a property, collect rents and recycle the RMB, get cash/sale proceeds back into hard currency and out of China, etc. You must research and get expert advice on this issue before proceeding with any plan to buy.

Then--regulations aside--there is the straight business issue of being able to rent out your property for an amount that covers your expenses. That is less predictable. Right now in many first-tier cities (including Beijing), market rents for upscale apartments generally aren't covering (or barely covering) basic landlord expenses: mortgage, management fee, heating fee, taxes, etc. So it's possible you'd have to depend on capital appreciation alone to break even/make profit. Property prices are just too high for what the market will support, and the common wisdom here is there is a gov't-developer-propped up bubble in many big cities, esp in higher-end residential property. Take heed of what has happened in the US, UK, and other places in the last year or so. China is not immune to same. You have been warned.

Taiwaned

Thank you thank you thank you.

Any residual lingering thoughts on this has been vanquished.

Gives me hope that we can find a good place to rent on the cheap.

jiejie

I did not mean to rain permanently on your parade! However, I think it is prudent that for the first year at least, you rent in your chosen city, get your visas and residence in order, and settle in. Then look around the real estate market and see what's what before making a final decision on whether purchasing makes sense for your situation. For most foreigners not married to Chinese spouses or with other long-term family or business ties, it does not. Especially when you consider other investment opportunities you may have on the planet.

It will be easier for you to gauge the market when you are actually in China, and to understand the full range of differences here vs other "free" markets (currency issues, ownership restrictions, you don't really "own" property but in fact have long-term lease rights). Private property rights and legal frameworks (including recourse for disputes), are evolving concepts in China and do not yet protect the individual's interests in the way in which you may be accustomed in your home country.

As for rentals, cities like Beijing or Shanghai--the most expensive locations in mainland China--are not as expensive nor as tiny as Tokyo or Hong Kong but more costly than most other Asian cities. There are a variety of rental situations available from the sublime to the ridiculous. You will pay through the nose for anything resembling a North American freestanding house--which is why few residents of those can rent there without full expat package from a corporation. Apartments are more plentiful and affordable. In general, for apartments suitable for comfortable standard of expat living ("international" housing), I would estimate rental prices as less than that of New York City or San Francisco level but greater than most other N.Am cities. Other Chinese cities will be cheaper, in some cases much cheaper. Of course, even in Beijing and Shanghai there are downmarket options that have greater numbers of local Chinese and fewer amenities (no gym, bldg mgmt not as good, lobbies not as swish, little foreign language TV, etc.) in the complex, but also at less cost. Many expats choose these and are quite comfortable. When you arrive, resolve to get temporary housing for 2-3 weeks and take your time looking around for your first 12 month rental. For a general idea of ballpark numbers in Beijing, you can take a look at the following website, with the caveat that often the prices you see can be negotiated down a bit. Shanghai and some other major cities also have online expat-oriented forums with similar classifieds. If you can read Chinese and go to Chinese websites, you will often find the same thing for better advertised prices. Caveat: Do not do any looking for a long-term rental until you arrive in China. http://www.thebeijinger.com/classifieds/housing

Jamoldo

Replace "expat" with "foreign student" and this is the kind of place I rented in Beijing. Pretty cheap and very spacious.