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Government rulings force Chinese to buy overseas property
By Juwai, 21 September 2012
Chinese property investors are looking abroad in increasing numbers as new statistics show that official sanctions to cool the countryâ€™s real estate market are taking hold. Overseas Property Professional reports.
September 20, 2011
-- More and more Chinese cities are reporting lower or unchanged property prices with home values in August down on July, according to the latest figures from the National Bureau of Statistics (NBS), as government efforts to cool the Chinese property market appear to be working.
And the Chinese government has also started to prepare home-purchase restrictions in second- and third-tier cities to prevent price increases.
Sherry Madera, managing director of property investment firm Five Continents Property, said that despite this Chinese investors' demand for property would not stemâ€¦and that in fact it would drive more to look overseas.
â€œAll things considered the cooling measures are taking effect, but people will still want bricks and mortar,â€ she said.
Even though government restrictions limit overseas investments from people in mainland China to $50,000 Madera added that buyers and finding ways around them.
â€œInvestors are very savvy. They will have a portion of their wealth outside mainland China already in places like Hong Kong,â€ she said.
â€œAlthough the restrictions are in place investors still want property. We are seeing a growing interest in property syndicates, with 10 to 15 people pooling assets to purchase good real estate.â€
â€œLifestyle investments are also seeing interest as something to add to a portfolio.â€
Traditional Chinese overseas buyer markets in Japan and Australia are also suffering, says Madera, meaning many are looking towards Europe.
â€œTried markets in Japan and Australia have gone off the boil. In Australia the dollar has become very strong, whereas obviously Japan is struggling in the wake of its recent disasters.
â€œOn the other hand the yuan has appreciated 50% over the last three years over the British pound, so buying property in prime London areas is relatively cheap.â€
â€œIndeed, they get the double hit of appreciation and the property asset.â€
Madera was speaking after her company featured at the Beijing Overseas Property & Investment Show last week, saying that the â€œamazingâ€ response in Beijing revealed the wide-ranging interest in China.
â€œWe had a lot of interest from varying levels, people wanting European suburban flats to Â£4 million London houses to $50,000 Cayman Island land plots. In the end property will always be emotive and desirable whatever it is.â€
Back in China, the NBS said property prices in August in 46 out of 70 monitored major cities declined or stayed flat. Just 31 cities reported similar market conditions in July.
Property prices for new homes dropped in 16 cities in August, up from 14 in July.
Thirty cities, including Beijing, Shanghai, Guangzhou and Shenzhen, saw property prices remain unchanged, according to the NBS.
The figures mean that for two months running, July and August, the top four cities saw unchanged property prices, a clear indication that tightening measures have had consequences.
"Property prices may fall in the next 12 to 18 months as the government's rigorous real estate measures continue," said Vincent Lo, chairman of Shui On Land Ltd, a major property developer in Hong Kong.
And Chinese Premier Wen Jiabao said last week that the country will maintain its prudent monetary policy as the economy is moving in the right direction.
"The tightening of bank loans and expanded home-purchase restrictions will see property developers face cash flow problems and this will finally prompt them to cut prices," Lo said.
Previously, the government restricted residents in major cities, such as Beijing and Shanghai, from buying second or third homes. Homebuyers were also required to pay higher down payments for mortgages. Property taxes have been levied in Chongqing and Shanghai.
Qin Hong, deputy director of the Ministry of Housing and Urban-Rural Development's policy research center, said at a recent forum that bank lending to developers has reached a record low.
"Property sales in first- and second-tier cities will experience negative year-on-year growth for 2011", and may decline further in the second half of the year, Qin said.
During the three-day Mid-Autumn Festival holiday earlier this month only 407 contracts were completed for residential apartments in Beijing. This represented a 70-percent drop compared to the three-day holiday in May, and a 50-percent decline from the corresponding period last year, according to the Beijing municipal commission of housing and urban-rural development.
September and October are traditionally busy periods for property sales.
Chen Zhi, deputy secretary-general of the Beijing Real Estate Association, said that the shrinking volume signals a cooling market.
Property developers, meanwhile, have taken different measures to deal with the sluggish market.
Cheung Kong Real Estate Limited will extend the time a customer needs to make a down payment to ease their cash flow concerns, director William Kwok said.
"For our new project in Beijing, the customer can pay 20 percent of the down payment when signing the contract, and then pay the remainder before the villa is delivered," said Kwok. "The period could be as long as two years, as opposed to the current one week."