With house prices rising rapidly, is it sensible for expats to purchase property in China?

By Chen Ximeng Source:Global Times Published: 2016/10/20 19:23:39

Some foreigners see owning property in China as a costly but worthwhile investment. Photo: IC

Some foreigners see owning property in China as a costly but worthwhile investment. Photo: IC

When Wayne Watterson came to Beijing from the US five years ago, like other foreigners coming to China, he was shocked by the sky-high house prices in Beijing and would never expect that he could own one.

He married a Chinese woman in 2012, and together they bought a small apartment in Tongzhou district in 2014.

"Buying a home in Beijing is not for everyone, but it can be a great investment and provide stability," said Watterson, 31, who works at an international school.

Watterson thinks that he and his wife made the right decision. The value of their 65-square-meter one-bedroom apartment has increased from 27,000 yuan ($4,006) per square meter when they purchased it to around 60,000 yuan per square meter in two years.

Since the government's decision to develop Tongzhou as a subcenter of Beijing in 2015, the housing prices in Tongzhou have rapidly increased.

A lot of other areas in Beijing and places outside the capital, such as Shanghai, Shenzhen in Guangdong Province and Hefei in Anhui Province, have also seen massive jumps in house prices, especially in the past several years.

According to a China Business News report in October, prices in Nanjing, Jiangsu Province and Hefei surpassed 10,000 yuan per square meter for the first time this year.

Despite the high real estate prices, some foreigners in China still choose to buy a home.

Also, some experts think that although foreign buyers are still a small market, the recent loosening of policy restrictions could go a long way in further encouraging home purchases.

The recent loosening of policy restrictions might help encourage more foreign buyers to acquire property in China. Photo: IC

The recent loosening of policy restrictions might help encourage more foreign buyers to acquire property in China. Photo: IC

Expat property owners in China

When Watterson and his wife decided to buy an apartment in 2014, they considered both Daxing and Tongzhou districts because they were the only places they could afford.

At first, they eyed an apartment in Daxing and even paid a deposit on it. But later, they decided to buy an apartment in the Jingmao International Community near the Grand Canal in Tongzhou. It is more expensive but has a better environment and play zones for kids, they explained.

For them, another primary reason for choosing their current location was that at that time, Subway Line 6 was under construction.

"We wanted to be close to Line 6, which would get us directly to Chaoyang district, where we used to live," said Watterson. By subway, it takes around 30 to 40 minutes from their new home to central areas in Chaoyang.

"I had also heard and read that Tongzhou had been designated a special economic development zone at the time, though no one knew then that the municipal government of Beijing would formally announce plans to move to Tongzhou in the near future. That announcement, and other major developmental projects in Tongzhou, including other subway lines, have caused our house value to increase greatly," he said.

Watterson recalled that although they were happy with their decision to buy a house, the couple had a hard time paying the down payment.

He said in Beijing, a down payment is 30 percent, but in reality, with additional taxes and fees, you need more like 35 or 40 percent. The down payment on their home, inclusive of taxes and fees, was 700,000 yuan.

"We had scraped together a little more than 600,000 yuan, which really wasn't enough for a down payment in Beijing in most places," he said.

"That really blew my mind because in my hometown of North Carolina, you could buy a three-bedroom and two bath home with a piece of land for not much more than that, and not even need a mortgage at all. A down payment where I am from is not much at all. It mainly depends on your credit rating. I couldn't believe 600,000 yuan wasn't enough just to get a loan!"

The couple borrowed from friends and family and applied for a bank loan. They got a 1 million yuan loan from the Bank of Singapore and pay 5,000 yuan per month to the bank.

After almost two and a half years, they see a light at the end of the tunnel. Their friends and relatives have been paid back, and there is about $5,000 left in credit debt, he said.

The downside of property ownership

Besides the sky-high prices, the instability of China's real estate market and property rights differences also make some foreigners hesitate to buy property in China. Ben Brown, a 42-year-American who has been living in China for nine years, bought a 130-square-meter apartment at Chongqing Tiandi in Chongqing two months ago.

He purchased the property with his Chinese wife whom he married two years ago. They made the purchase because they will stay in China for at least five more years and saw a property that they felt was undervalued. In two months, the value has increased by about 10 percent.

"I am always worried that China's housing prices will hit a peak and begin to drop again, especially after it has been crazily increasing this year," said Brown.

Watterson said one big difference with the housing situation in China is that the property is only yours outright for 50 or 70 years, whereas in the US, it is yours to keep for your entire life and can even be left to your children. The difference makes some expats hesitate to buy.

It can also limit the maturity of housing loans, as you cannot get a 30-year loan for every house, he said.

Jeremiah Jenne, an American historian who has been in China for over 14 years, plans to buy property in the next year or so. But he and his Chinese wife do not think it's a good idea to invest in property in China.

"Some new buildings have been constructed with shoddy standards, and the legal protection for buyers is very weak compared with other countries," said Jenne.

"If we're going to invest money in property, we'd rather do so somewhere with a stronger rule of law, better building codes and standards, and where there are strong legal and regulatory protections for home buyers. Right now, buying a house in China is just too risky."

Loosening policies

Christopher Dillon, the author of the Landed series of real estate books, including Landed China which explains how to buy a house in China as a foreigner, thinks foreigners are still a tiny part of the market right now and that only a few banks, developers and agent companies cater to them.

But Dillon also pointed out that the loosening policy restrictions which bring a more open market, will encourage more foreigners to buy property in China.

Chinese Premier Li Keqiang said in a meeting in early 2015 that he welcomes foreigners to come to China to buy a house, and they can enjoy the same loan policy as nationals, The Paper reported in March 2015.

In February, the Beijing government launched a new policy allowing any foreigner with a work permit to purchase residential property in Beijing. Previously, foreigners could only buy a house if they had worked for at least one year in the city.

Shenzhen implemented a new policy in December 2015, allowing foreigners with a permanent residence permit to buy a house with their public accumulation funds, if they have one at their company, the Yangcheng Evening News reported.

Things are getting better. Over the past years, the construction quality, the building skills, materials and designs have improved a lot, which increases foreign buyers' confidence and provides them with more choices, said Dillon.

He thinks China could benefit from creating a regulation especially for foreign buyers and faster updates about policy changes.

"The government is loosening some policies for foreign buyers, but tightening other rules for things like minimum down payments, which affects all buyers. Many foreigners may not even realize that they can own property in China," said Dillon.

Watterson and her wife are expecting a baby, which makes owning their own home even more important.

"It's really a great blessing to own a home in Beijing. To have a stable place to call our own feels rewarding. My wife and I are incredibly fortunate to have chosen here (Tongzhou). I know the future is very bright for our Chinese home."

Newspaper headline: To rent or to buy?


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