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Is buying property in China really worth it for Singapore investors?

There are severe restrictions on foreigners investing in Chinese real estate. If an investor from Singapore wants to buy real estate in China, it is necessary to actually move there.

Till recently, Chinese government rules required that a foreigner who wished to acquire real estate should have worked or studied in the country for at least a year. Additionally, it was permissible to buy only one property in China.

But in August 2015, the regulations were amended and investment in Chinese property by foreigners became easier. According to the new rules, individuals and companies from other countries are allowed to buy real estate in China regardless of how long they have been in the country.

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Source: Pixabay

Another relaxation move allowed for foreigners to buy more than one property. But despite these changes, some cities follow practices that place restrictions on foreign buyers.

For example, Shanghai and Beijing only allow foreign buyers to purchase one property.

 

How property ownership works in China

All land belongs to the government and in reality, a sale actually signifies a lease. The tenure of the lease is based on the manner in which the land is used.


Source: China Briefing

When the lease expires, the real estate owner may be required to pay the land usage price again based on the market price of the land. The state may also withdraw usage rights midterm. In this event, compensation would be paid to the owner.

 

The Chinese property market


Source: Pixabay

China’s large cities are categorised into three tiers. Beijing, Shanghai, Shenzhen, and Guangzhou are the country’s largest cities and are grouped under tier 1. There are 22 cities under tier 2 and 74 in tier 3. Each of these has a population in excess of 1 million.

Prices, rents, and vacancy rates vary widely across cities. The following table provides an idea about capital values, rents, and vacancy rates.



Source: Knight Frank Research

In the last year, property prices in China have been booming. According to a report in the Financial Times, prices in Beijing, Shanghai, and surrounding areas have climbed 25% over the past 12 months.


Source: Financial Times

But the rise in prices is preventing many first-time buyers from entering the market. In an effort to control rapidly increasing property rates, several local governments are initiating cooling measures.

In October last year, fourteen localities implemented restrictions that included preventing people from buying additional homes and restricting borrowings for home purchases. And the last 12 months have seen 22 cities imposing curbs on property acquisition.

However, China’s property market is not homogeneous. Tier 1 and tier 2 cities have recorded rapidly increasing prices and property shortages, while smaller cities have large unsold inventories.

Due to this, the government cannot implement common policies across the country. Local authorities play a large role in influencing property markets in the areas they are responsible for.

Prime office space in Beijing and Shanghai is priced at US$8,000 to US$9,500 per square metre (psm), according to Knight Frank Research. Rentals are at US$56 psm in Beijing and US$45 in Shanghai.

 

Which are the best locations in China?


Source: Pixabay

Tier 1 cities are the safest to invest in. Certain tier 2 cities like Chengdu, Chongqing, Hangzhou, Suzhou, and Nanjing are also good options.

When deciding on a location it is a good idea to take these factors into consideration:

  • Does the city have adequate infrastructure and is it well-connected?

  • Is the area regulated efficiently by local authorities? Don’t forget that the regional government officials have a large say in property matters.

  • Are there many expatriates in the area? If foreign property owners have not encountered any problems, it is likely that your purchase will also go through smoothly.

 

Importance of engaging an agent


Source: Pixabay

It is absolutely essential to hire a reputed real estate agent to guide you through the intricacies of buying property in China. Regulations and policies vary from region to region and local expertise is crucial to ensure that your purchase transaction goes through smoothly.

Exercise great care before finalising your purchase. The Chinese property market is not for everyone. There are rigid entry barriers and only a select set of investors would venture into this market.

The need to proceed with a high degree of caution in your real estate purchase cannot be overemphasised. Although the Chinese property market has been trending upwards, it is prone to steep rises and falls.

The government regularly intervenes in the market in an effort to control its swings. Sometimes this intervention can cause property prices to fall very steeply.

(By Ravinder Kapur)

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