Buying & Selling in China

[stevehem]

Originally Posted by rcroome

I live in Shanghai and the pace of residential building where I live (Minhang), has to be seen to be believed. About 200,000 2 bedroom apartments (about 1000 now, but the rest of the land has been bulldozed), are being built within a kilometer of me. From the outside it looks like they are for middle class Chinese. I suppose there will be enough demand for these, however with the way the Chinese are so bullish about economic growth, even a small hiccup could mean serious problems for people who buy now regardless of who you are.

There is certainly something akin to an irrational exuberance about the China real estate market right now. I spent the last couple of weeks looking around nice new apartments in and around Zhuhai. There are a lot of them (fewer than in Shanghai, for sure, but still a lot), a lot that are empty, and - what is worse - there are a lot which are still empty five years after being built. There are also some pretty scary variations in price even in the central area of Zhuhai. Some properties can be picked up for not much more than RMB 3K psm, others (admittedly villas) are selling at up to RMB 30K psm. The cheap ones are old, of course, but this is not necessarily a disadvantage as long as the location is extremely central. If the block gets knocked down the leaseholders will be bought out at a premium to the market price. I have heard of this happening recently: the developer needs to get control of a building before he can knock it down.

Having said that, I think that it is quite possible that Hong Kong, especially in the Central area of HK Island is the best way of taking a bet on the China real estate. The markets are strongly correlated, but in HK nearly all the political and 'legal uncertainty' risk is eliminated. Not only that, but Lloyds TSB are happy to finance an investment purchase.

[mkellerman]

I am resident in Shanghai and own property here with a mortgage from a Chinese bank. In the past it has been possible to get foreign currency mortgages from branches of foreign banks here in China, but I think this is not possible right now (this might change in June).

I'm wondering about buying property in Hong Kong. What kind of property is a good investment?

[stevehem]

In my view the best area is definitely Hong Kong Island, especially near Central. Even more specifically I'd recommend 'central midlevels near the escalator'. Soho West, nearby is pretty good. I would recommend an older walkup block with redevelopment potential. These places go for a slight premium over those with no potential but offer a "lottery ticket" bonus, because if someone does want to redevelop he will have to persuade at least 90% of leaseholders to sell.

It is relatively easy for a foreigner to obtain finance for this kind of purchase both from HK and overseas banks, lending up to 70% of value. The interest rates (courtesy of Ben Bernanke) that are payable mean that there is usually no problem at all with interest cover. Yields are around 6.5%.

[mkellerman]

Originally Posted by stevehem

In my view the best area is definitely Hong Kong Island, especially near Central. Even more specifically I'd recommend 'central midlevels near the escalator'. Soho West, nearby is pretty good. I would recommend an older walkup block with redevelopment potential. These places go for a slight premium over those with no potential but offer a "lottery ticket" bonus, because if someone does want to redevelop he will have to persuade at least 90% of leaseholders to sell.

It is relatively easy for a foreigner to obtain finance for this kind of purchase both from HK and overseas banks, lending up to 70% of value. The interest rates (courtesy of Ben Bernanke) that are payable mean that there is usually no problem at all with interest cover. Yields are around 6.5%.

thanks for that