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Expats wary of buying homes
By Gary Sands |
June 11, 2010, Friday
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Print Edition
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BETTER city, better life. Here in Shanghai, authorities have worked hard on China's "showcase city" in preparation for the World Expo, the results of which are on display for both Chinese and foreign visitors to appreciate.
With the improvements and Shanghai's economic growth, some foreigners are considering the purchase of an apartment or villa in the city.
Yet many are put off by high prices.
As I mentioned in a recent column, average prices in Shanghai real estate reached 24,000 yuan (US$3,529) per square meter in April, setting a record.
Last month a friend of mine purchased a 77-square meter apartment in Waigaoqiao, a free trade zone and well outside the city center.
Despite being far from the city center, the purchase price was nearly 20,000 yuan per square meter.
Chinese authorities have taken note, implementing several tightening measures, including raising bank reserve ratio requirements, increasing down payments, and restricting third-home purchases.
In light of the monetary tightening measures and the recent freeze on prices and hesitancy by buyers, is now a good time to buy?
Some foreigners I've talked to who have purchased apartments several years ago are sitting on handsome profits and wondering if now is the time to sell.
An American friend, married to a Chinese woman, spoke of tripling their investment in a mere five years.
At the time of their purchase, many had considerable doubt about the quality of old and new housing developments and chose to purchase top-end luxury apartments in places near Xintiandi, an upscale bar and restaurant area designed in shikumen-style.
Most of the foreign purchasers are married to Chinese, which gives them some comfort that any future laws or actions specifically targeting foreign purchasers will not effect their purchase.
Despite some economists forecasting up to 30-40 percent decreases in the price of apartments in Shanghai, Beijing and Shenzhen, many are fairly confident prices will not fall to below their purchase price, resulting in the negative equity so prevalent in the US.
But neither are they confident prices will continue to rise as much as in the last few years. Renting the properties out is not really an option, as rental prices have been fairly stable over the last five years and none want the hassles associated with becoming a landlord.
And with discussion by the government on whether or not to institute a property tax, some foreigners are worried about further legislative changes down the road.
Many prospective buyers are taking a wait-and-see approach. With the world's economies still facing uncertainties, most employers are not confident enough to resume hiring and many are still cutting back.
Foreign employees in China are understandably worried about losing their jobs and putting their money in a fairly illiquid investment such as real estate.
And no one knows where prices will head - the government's measures have frozen transaction volume and many developers are unwilling to cut prices, preferring instead to hold onto their inventory until the buyers lose patience.
How long the government allows developers to hold onto unsold properties is the question on every buyer's mind.
(The author is managing director of Highway West Capital Advisers. The views are his own.)
With the improvements and Shanghai's economic growth, some foreigners are considering the purchase of an apartment or villa in the city.
Yet many are put off by high prices.
As I mentioned in a recent column, average prices in Shanghai real estate reached 24,000 yuan (US$3,529) per square meter in April, setting a record.
Last month a friend of mine purchased a 77-square meter apartment in Waigaoqiao, a free trade zone and well outside the city center.
Despite being far from the city center, the purchase price was nearly 20,000 yuan per square meter.
Chinese authorities have taken note, implementing several tightening measures, including raising bank reserve ratio requirements, increasing down payments, and restricting third-home purchases.
In light of the monetary tightening measures and the recent freeze on prices and hesitancy by buyers, is now a good time to buy?
Some foreigners I've talked to who have purchased apartments several years ago are sitting on handsome profits and wondering if now is the time to sell.
An American friend, married to a Chinese woman, spoke of tripling their investment in a mere five years.
At the time of their purchase, many had considerable doubt about the quality of old and new housing developments and chose to purchase top-end luxury apartments in places near Xintiandi, an upscale bar and restaurant area designed in shikumen-style.
Most of the foreign purchasers are married to Chinese, which gives them some comfort that any future laws or actions specifically targeting foreign purchasers will not effect their purchase.
Despite some economists forecasting up to 30-40 percent decreases in the price of apartments in Shanghai, Beijing and Shenzhen, many are fairly confident prices will not fall to below their purchase price, resulting in the negative equity so prevalent in the US.
But neither are they confident prices will continue to rise as much as in the last few years. Renting the properties out is not really an option, as rental prices have been fairly stable over the last five years and none want the hassles associated with becoming a landlord.
And with discussion by the government on whether or not to institute a property tax, some foreigners are worried about further legislative changes down the road.
Many prospective buyers are taking a wait-and-see approach. With the world's economies still facing uncertainties, most employers are not confident enough to resume hiring and many are still cutting back.
Foreign employees in China are understandably worried about losing their jobs and putting their money in a fairly illiquid investment such as real estate.
And no one knows where prices will head - the government's measures have frozen transaction volume and many developers are unwilling to cut prices, preferring instead to hold onto their inventory until the buyers lose patience.
How long the government allows developers to hold onto unsold properties is the question on every buyer's mind.
(The author is managing director of Highway West Capital Advisers. The views are his own.)
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