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Jun
2015

Property investment

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Investing overseas

In recent years, many Chinese have started to look for property investment opportunities overseas for a variety of reasons. One of which has been the uncertainty of property ownership in China, where in fact all land belongs to the state and nobody ever owns a home outright. The other being government policy to slow the growth of the property sector which has been expanding at a very rapid rate because purchasers see bricks and mortar as a safe haven for their cash.

As a result of the recently slowing domestic economy, government real estate control policies now limit the number of properties individuals can own, and appreciation of the RMB, many Chinese HNWI’s from the Yangtze River and Pearl River Delta regions’ have begun to invest in overseas property markets as vehicles to preserve and appreciate their assets. Some commentators have estimated that based on the current assets and population of Chinese HNWI’s, 1.1 Trillion RMB may be invested in the overseas’ property markets in future.

Emigration and the privilege of having their children studying abroad have been the two main motivations for the Chinese buying properties overseas. However, in recent years, many have begun to consider more about the return on investment element of purchase, and those buyers who choose to invest internationally tend to be younger now, than in the past.

According to Liu Yiqi, the Director of International Residential Sales at Jones Lang LaSalle in Shanghai, 84% of the Chinese clients who buy a property in London through the company are over 40. From the professional point of view the top group representing about 23% of buyers are from the financial industry. Overall, most clients choose properties valued from £500,000 to £700,000, because this type of residence is relatively small and easy to rent out.
Mr. Wang bought an apartment in Zone 1 with a floor area of ​​52 sqm and 2 sqm balcony at a total price of £ 880,000. This is an investment as well as the base for his child who will study in the UK. The apartment is near London School of Economics and Royal Courts of Justice, and a 15 minutes walking distance to the Covent Garden.

“Overseas property buyers can maximize return on investment because they are not limited by resale regulations as they are in China, and are free from building taxes and Capital Gains Tax.
The Chinese media also claims that overseas buyers can apply for a UK mortgage, with interest rates as low as 3% if they invest 75% of the total purchase price. Coupled with the high property rental profit in London, I think I will be able to earn back the principal investment soon.” said Mr. Wang

Overseas investment to some extent is for HNWI’s, while to the majority of affluent people tend to invest in the local market. With the severely restrictive government ownership policies in the residential market, and the retail or office building sector, business-living buildings (mixed use buildings) have recently become a new battleground for investors. The purchase of business-living buildings is not limited as pure residential ownership is, and the related policies are also the most stable within property industry over the past decade.

未标题-15435435Business-living building

Business-living buildings are mixed use structures containing both business and residential space offered with property rights for 50 years. While property rights for retail or offices buildings themselves are only 40 years.

Take Beijing for example, the data from the Beijing Municipal Commission of Housing and Urban-Rural Development shows that by 19th November, 22,397 units of business-living properties in Beijing were sold, an increase of 2.5% compared to the same period in 2012. They covered a total area of approximately 1.71 Million sqm, an increase of 14%. The average transaction price was up to US$ 3,566 per sqm, a rise of US$ 352 per sqm.

Flats close to a subway station and at a total price of 1 Million RMB are the most highly favored by business-living building purchasers. In October, all 1,000 flats in a community in the Beijing Economic Development Zone sold out in 4 hours after they were released on the market. In another community near the Fangshan subway line, all 600 flats in the development sold on the day the development was launched.

“I’ll rent out first, and maybe five years later after the area has become mature and popular, I will resell it.” An investor who bought a 45 sqm flat at a cost of 800,000 RMB said.


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