Two steps forward, one step back
According to the handbook published by Property Frontiers, one of the main elements of the newly emerged economic freedom in China was the introduction of property ownership in 2004. The main message was as follows: "The rights to legally acquired private real estate of citizens cannot be violated," but at the same time the state retained the possibility of expropriation of property, although it promised compensation. Even earlier, in 1997, citizens were allowed to acquire city real estate as property – in form it rather resembles a leasehold, since the land continues to belong to the state.
The boom in the real estate market that followed the adoption of these laws was to some extent facilitated by the massive influx of foreign capital into China. Concerned about the sharp jump in the market, the Government took measures to curb the uncontrolled rise in real estate prices, and on July 1, 2006 adopted Circular 171, limiting the excessive freedom of entrepreneurial activity of foreigners. The circular narrowed the circle of non-residents who have the right to purchase real estate to foreign citizens living in the country for at least a year, and they are allowed to buy only one object and are prohibited from renting it out.
There is another option – to register a Chinese company and issue a real estate purchase for it, but this is a very expensive and lengthy process, besides there are no guarantees that the Ministry of Commerce will approve the transaction.
Move on
The introduction of strict restrictions has undoubtedly cooled the market in the most popular cities, such as Shanghai, Beijing and Guangzhou, however, according to James McDonald, head of the research department at Savills China, the demand for modern housing, and with it prices here, as before, are steadily growing.
In addition, as a result of the government's actions, attention has increased to the cities of the "second echelon", such as Chengdu, Tianjin, Hangzhou and Nanjing, to which investors have rushed, hoping for the same income as from real estate in the leading cities.
Despite the harsh Chinese laws, the share of foreign investment in the country's real estate is still noticeable, and if you are planning to create a company with Chinese capital or you have been living in China for a long time, then it makes sense to think about buying real estate. Marsha Lu from Property Frontiers says that due to high domestic demand, the growth of the housing sector is significant, and the latest laws allow for the automatic renewal of land leases after the initial 70-year period, which gives owners greater confidence in the future. "Low real estate prices, especially in cities such as Chongqing (in central China), where prices for luxury properties are only about $1,000 per 1 sq. m, make it affordable for both local and foreign investors," adds Marsha Lu.
Centripetal force
However, the focus remains on Beijing, the capital of China. On the eve of the Olympic Games, there has been a rapid increase in the cost of luxury housing. The bulk of new buildings are located outside the fifth Beijing ring road, in these areas prices are much lower than in the center. Despite this, according to James McDonald, it is real estate in the central parts of the city that will be in particular demand.
The Fortune Plaza complex will become the tallest residential building in Beijing: its upper part is occupied by apartments, the lower part is occupied by commercial premises. The cost of luxury apartments ranges from $7,100 to $11,400 per 1 sq. m., the completion of the project is scheduled for November 2008.
Located in the central business district, the Park Hyatt complex is part of the Yintai Centre, which is just 5 minutes away. from the embassy quarter and 15 min. – from the Forbidden City. Apartments in this complex, the construction of which was completed in April 2008, can be purchased at a price of $12,800 per 1 sq. m.
Chinese steam locomotive
Bustling Shanghai on the shores of the East China Sea is now considered the driving force of the Chinese economy. There are offices of many international companies located here, and foreigners living here are actively buying up real estate, so there is a constant strong growth in the local market. James McDonald claims that over the past two years, the supply of new housing has been absorbed by the market: "It is assumed that due to the cosmopolitanism of Shanghai, stable growth will be observed over the next few years."
The Above the Bund complex is being built on the banks of the Huangpu River in the International Quarter, apartments in it can be purchased through Savills for $8500-17 100 per 1 sq. m. Those who would not like to live in a skyscraper are offered the Emperor Zillah project with private residences on 2 hectares in the Dongjiao Villa area, just 30 minutes away. from Shanghai Pudong Airport. The complex will consist of a clubhouse and 21 villas, which the Savills agency sells at a price of $9250 to $10,000 per 1 sq. m
. The Space exclusive real estate agency in Shanghai offers two-bedroom apartments in the WuKang Mansion, built in the colonial style and located in the French quarter of the city. The interior has preserved wooden floors and elegant doors; the cost of the objects is $670,000. The same agency offers four-bedroom apartments priced above $2.1 million, within walking distance from the Xintiandi quarter and Huaihai Park. If you are looking for housing away from the center, Knight Frank Agency offers several detached houses in the Rancho Santa Fe complex as part of the Jinfeng International Community project; prices for these objects start at $5,700 per 1 sq. m.
Investors maneuvered... and you maneuvered
Circumventing legal restrictions and bureaucratic traps can become a very risky occupation for any buyer, but there are still ways to invest in local real estate despite the constraints. Steve Hemingway from Ming Wei Real Estate Investment agency explains that restrictions on the ownership of real estate by non-residents are sometimes very conditional and local authorities often make the final decision solely at their discretion: "This is not about violating the law, but the authorities may refuse to register the contract. Thus, in the worst possible case, the deal will simply be frozen."
Practice shows that this situation is very typical for small towns, but Steve Hemingway draws attention to the city of Zhuhai near the border with Macau (near Hong Kong) – a special economic zone famous for its casinos, nightclubs and a racetrack.
Real estate prices in Zhuhai are three times lower than in Macau, and five times lower than in Hong Kong. The region is developing transport infrastructure, including expressways and railways that will connect Zhuhai and Guangzhou – the main gateway between Hong Kong and mainland China, which will give a new impetus to the development of the city.
In Zhuhai, Ming Wei Agency offers three-bedroom apartments for $355,000 and a three-bedroom villa for $275,000. Buyers can choose an object in a complex of townhouses from LVGEM at a price of $3000 per 1 sq. m. m and order interior design according to individual preferences, which will cost from $285 to $1400 per 1 sq. m.
Details of the ceremony
Steve Hemingway himself prepared well before buying a property in China. "Together with a colleague, I visited many websites, studied books on real estate and Chinese legislation, but I never managed to fully understand everything. I talked to many experts and investors and even got acquainted with sources in Chinese with the help of translators."
He chose Zhuhai because of its proximity to Macau and Hong Kong, as well as because of the low prices. Now he owns 9 apartments priced from $790 to $1,440 per 1 sq. m, which he rents out to locals and foreigners. Steve emphasizes that it is very difficult to make a purchase without professional legal assistance to a person who does not speak Chinese. "In practice, a foreigner is not able to fill out all the forms for the transfer of ownership rights, so you should write out a power of attorney in Chinese, according to which the authorized person can sign all the necessary documents on behalf of the buyer. The powers of this person are spelled out exceptionally clearly in the power of attorney."
While real estate prices continue to rise, the rental market is developing quite slowly, so the income from renting out housing is falling. According to James McDonald, in 2004-2005, the income level was 5-6% of the cost of the object per year, today it has decreased to 3-4%. It should be noted that, although foreigners can now purchase housing only for personal use, for those who bought real estate before the adoption of Circular 171, there are no restrictions on renting out objects.
The purchase process is the same for both Chinese citizens and foreigners, but foreigners are required to provide proof of residence in China for at least a year,register the fact of the lease of land and the right to property in the relevant administrative authorities, as well as write a statement that the property is purchased exclusively for personal use.
