You could search the internet for weeks reading the latest reports and articles on the subject, but the truth is—if you want to take advantage of the opportunities in China, you have to be here.Everyone knows China is the “new” big frontier and although one should always be cautious when making investments, there is a lot that can be done. Whether you are looking to invest in one unit or a couple thousand, foreigners can successfully navigate the Chinese market.
Yes, foreigners can invest in real estate in China.
Yes, foreign investors can get a mortgage.
No, the Chinese government can’t just take your home, as defined in an early March 16, 2007 law and further clarified by a recent October 1st law.
And, yes, the China market can provide fantastic investment opportunities.
City Example: Chengdu
While most people are familiar with China’s first-tier cities like Beijing, Shanghai, Guangzhou, and Shenzhen, second-tier cities like Chengdu, Suzhou, Wuxi and Hangzhou and Chongqing are not quite as familiar.
Chengdu, located in the middle of China as the capital of Sichuan province, has a population of more than 11 million people and is spread over 12,000 sq. km. There are over 35 universities, and over 110 Fortune 500 companies already have operations or representative offices in the city.
Fueled by the central government’s “Go West” program, the local government’s tax incentives for multi-national companies, the investments of thousands of foreign companies, and a seemingly endless amount of resources and job talents to pull from, Chengdu has become a prime location for investment. Nearly five percent of real estate investments in Chengdu this year have been by foreigners and although the Chengdu market is still young to foreign investors, the current infrastructure has been built from the knowledge and experience gained by well-developed cities like Beijing and Shanghai. This means banks, property developers, and other investors have already experienced similar market conditions which help eliminate some of the “growing pains” new and fast-growing markets can experience.
The average, published, purchase price of high-end apartments tends to range from 6-7,000 Yuan per sq. meter. This price is misleading for investors who are looking to purchase “ready-built” housing that can be rented out immediately, since these units are not yet constructed.For investors wishing to take advantage of the 11% average annual purchase price increase of apartment prices, these units are ideal, but investors wishing to cover mortgage payments from a tenant’s rent should plan on a much higher purchase price. One should look to the money saved by purchasing early, as opposed to the money lost in rental when deciding which type of investment to seek.
Vacancy rates in second-tier cities also tend to be lower than those in first-tier ones, and rental prices for high-end apartments and villas are much higher than potential mortgage payments. Rental prices are often yielding double-digit returns on investment.
LOANS & LAWS
The subject of how much one can borrow is a little trickier, however, and depends on the bank and the investment. Most private investors can get a mortgage relatively easily. And as a bonus mortgages in foreign currency are locked into an exchange rate. But the bargaining power over mortgage rates is smaller as a private investor; banks will not usually loan more than 5 million Yuan which may make it difficult to finance more expensive properties without a larger down payment.
Chinese real estate laws, especially with regards to foreign investors, are relatively new and can be difficult to navigate if searching alone.It is also important to keep in mind that although a law may be put into effect, it can often take time to reach full implementation (especially in more remote areas of the country) so it is important to do research on an area’s practice as much as the law itself. In the end, going directly to the city one wishes to invest in and talking with existing investors and agencies that have experience dealing directly with foreigners is a good choice for finding accurate and useful local market information and help.
At any rate, second-tier cities like Chengdu are exciting places for real estate investment in China and the second-tier cities will continue to boom for some time.
Dustin Mills is the General Manager of Maxxelli Real Estate (Chengdu) Ltd.
Maxxelli Real Estate ( www.maxxelli.net, with offices in Suzhou, Wuxi, Hangzhou, Chengdu and Chongqing) is a fully licensed and registered real estate company that deal specifically with foreigners leasing and buying property.