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This the year of the Beijing Olympics and all eyes will be on China as it celebrates its arrival as a major global power. To many, investment in China may seem like a difficult prospect. Apart from language and cultural differences, concerns may range from laws and regulations which may not be transparent, to complicated bureaucracy. However, China has made huge progress since it joined the UN and embraced a market-oriented economy in the late 1970s. The country is opening up to trade, has an increasingly liberal global trade regime, and labour costs are a fraction of what they are in the West. China also showed its openness to progress and development by joining the World Trade Organisation (WTO) in 2001.
The Chinese government is also keen to attract foreign investment into their country and began easing many restrictions to smooth the path for those interested in purchasing property in China back in 1998. Their efforts to boost their economy through the promotion of foreign direct investment proved almost too successful and resulted in the government fearing that speculators would strip the property market of stability. As a result the Chinese government has now made it more difficult for investors to realise short term gains from the property market. Because of this fact the market is now less popular with those real estate investors looking for short term gains and more popular with those looking for a stable market with massive potential for demand and expansion over the medium to long term.
Property Buying Information
Buying property in China can be a straightforward experience, but it can also get caught up in a tangle of conflicting local and national laws and the like. It is for this reason that a local, trusted lawyer is essential to help with all proceedings, and to make sure any potential pitfalls are avoided. It is also necessary for a foreign buyer wishing to invest in China to have a notarised Chinese name - this can be carried out in China or at a local embassy. The entire buying process can be carried out remotely, if a buyer so wishes, and they only need to give permission to their representative in China.
Once a property for sale in China has been decided upon and a price has been agreed, a pre-contract - sometimes known as a Customer Confirmation Agreement - is signed and a deposit of around 10 percent is paid. The Chinese property transfer process is then carried out, which ends with the date when the title transfer will be completed - legal checks and the like are finalised and the final contract is signed. All remaining fees and taxes are now paid in full. Taxes and fees usually amount to around 10 percent of the total cost, though this can vary significantly in different provinces and for different types of Chinese property for sale.
All property in China is under a 'land use right' system, similar to the western leasehold concept. There are three types of lease on land: residential, which is run on a 70-year lease; commercial, which is on a 50-year lease; and industrial, on a 40-year lease. At present, due to the relatively recent nature of this system's creation, what happens at the end of this period is uncertain, although the government is likely to create possibilities for renewals of leases similar to European models.
The recent drop in prices in the residential sector, combined with the sustained strength of returns in commercial properties, means that institutional investors are now more certain than ever that the Chinese commercial property sector is the one to become involved in. Investors are aware that prime office space in China's main cities is in relatively short supply, allowing owners of such properties to charge ever increasing rents as demand increases, and domestic purchasing power in many Chinese cities is also increasing, meaning that businesses are able to pay higher rates for retail space. The residential market is also by no means finished; in fact we believe that Chinese residential property offers one of the best long term investment opportunities around.
The securest investments currently on offer, however, are most likely those available in the serviced apartment sector. The demand for apartments and hotel accommodation is rising rapidly in major cities such as Shanghai, Beijing and Guangzhou, especially in areas close to the financial and business centres of these cities. The great advantage of these properties lies in both guaranteed rental schemes (an example of a property currently available has a guaranteed rental averaging 8.9% of the purchase price over an 18-year agreement) and in a capital appreciation rate of, in many cases, around 20.1% per year. A number of new developments are also available with their full lease period intact.
By: Shabina Sanad
GOWEALTHY.COM © 2008
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