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Second Tier City Real Estate Investment
-By Dustin Mills Hundreds of billions of Yuan are pouring into China’s real estate market; apartment complexes and entire neighborhoods are built in the blink of an eye; apartments are sold before construction is finished; and everyone’s attention—both good and bad—is riveted by China. However uncertainty lurks, can China’s real estate boom continue or will the bubble burst like the US dotcom industry in the 90s? Regardless, many investors have successfully navigated the Chinese market and many, many more are on their way. And they are all asking, “Where should I buy?” and “How do I buy?”
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.
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Comments
So, China expat is now doing
So, China expat is now doing advertorials. Please bring back stories that make me laugh during the 14 daily hours in the Hobbesian hell known as my office. If I want a blog on Chinese business/investment/economic environment, I’m reading managingthedragon.com. I come to chinaexpat for good writing and witty insight, not 2nd rate advertorials regarding speculative real estate plays in 2nd tier cities.
2nd rate alright
Ernie's blog hits new heights to help you make all your real estate investing dreams come true!
Carlton Who?
Stick around for my late-night infomercial, in which I reveal secrets for making millions in foreclosed upon Chinese real estate.
Trust me! I'm in real estate
Trust me! I'm in real estate and before that it was used car sales. You can't get much more professional advice than that!
reply
The challenges of operating in a second-tier city in the areas of market transparency, policy stability and manpower availability should not be under-estimated. Foreign players might not be able to replicate their successful overseas experiences if they do not have good relationships with the local government and do not have the right people on the ground.
Investment Hub
well, over a time china has developed themselves a leading hub for the investment purpose, than it may be real estate or it can be technology. All electronics product of china are being exported to different countries of the world. They are just breaking the market of different with their driven technology.
Chengdu Real Estate
Contrary to the authors assertions, you can buy good quality finished apt int the 150 sq meter for under 7000K RMB /SQ Meter. Also buying to rend makes no sense in chendu. There are no double diget yields. A fully furnished 3 bedroom in 2nd ring that would sell for 970,000 RMB would rent for aprox $2500 RMB a month right now yeild of under 3%.
Its generally understood that the high end residential market in most of china's cities has sold off 20-30% and is only now stabilizing due to massive govt spending. Almost every professional manager i speak to suggest holding off for now until things pull back in a second leg down.
..
My country faces the same phenomenon. Properties are constructed intensely, the marketing have been started before the first stone is put, and almost all are sold in advanced (mostly also before the constructions start). I think it will not triggering bubble like the US case, since China's population is so big (besides foreign investment). More and more people are needing new homes for their new family.
Hot favorite
After the recession prevails in the US. China has become the hot spot to invest on. Also the Malaysia, Singapore and Thailand are hot favorite too.
*Yes, foreigners can invest
*Yes, foreigners can invest in real estate in China.
*Yes, foreign investors can get a mortgage.
*And, yes, the China market can provide fantastic investment opportunities.
Those 3 were the best part of the article as far my point of view.It is really great and good for us to have good opportunities and having open doors to do our business with different countries,and regarding this China has been the best so far.
Encouraged about China allowing foreign mortgage holders
Allowing foreign investors and mortgage holders is a smart move by China - it will help reduce their dependence upon their own citizens for economic strength.
Very interesting to read. I
Very interesting to read. I enjoyed well while reading. I will recommend my friends to read this one for sure.
Dubai Villas for Rent
You may be right before 2009
You may be right before 2009 but now it can be a worst advice. I use to sell apartment Dubai but now I can't even get a Dubai villas for rent after the damn recession hits the world.
Well things seem to be
Well things seem to be pretty crowded in China, I never really liked crowds. Under these circumstances I should consider myself lucky that I can afford to search for Tucson homes for sale...
China is facing a real
China is facing a real spectacular emerging in more industries, not just real estate. But above all real estate in China is something we should all learn about as it's phenomenal and superlative. It's amazing how many resources are at stake and if things will go on as they do now China will soon dictate the trends on real estate in the world.
Chengdu and Panda
Located just 10km (6miles) away from downtown Chengdu, the Chengdu Panda Breeding Research Center has been created and imitated the pandas' natural habitat in order that they might have the best possible environment for rearing and breeding.
Buy before the bottom drops out
This sounds like the beginning of a real estate bubble. This is likely the early stages though, so there is still time to make money.
Don't invest in something you don't know
My personal belief is that you should not invest in something that you do not understand. Unless you live there, and are familiar with the area, I would stay clear of real estate. I am sure there are scam artists there (as in the rest of the world) who would take advantage of the ignorance of foreign investors. If you are going to proceed, work through a trusted local expert.
hey
This will boom the real estate market in China a great deal...many JVs will happen with the China Construction companies...chunks of foreign capital will enter China..it will really boost the realty market of China...
That's good, cuz the realty
That's good, cuz the realty market in China sure needs a boost now, prices are so depressed!
Ride the wave
China is the place to be economically right now. Their growing economy is creating a new wave of consumers - who will be seeking real estate in the near future. Getting in on the early stages of this could prove profitable - as long as you work with a local specialist to ensure you are picking the right area.
"who will be seeking real
"who will be seeking real estate in the near future"? Dude. It's 2010, not 2001.
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