Prospects of Real Estate in Beijing After the Olympic Games

Prospects of Real Estate in Beijing After the Olympic Games

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The Iconic Bird’s Nest Stadium in Beijing

Beijing’s property market has been ogled by investors for some time now. In the rush to build new infrastructure to compensate for the millions of visitors to the Olympic Games, many bought into the boom in the hopes of making a nice profit. But when China’s real estate market started to heat up a few years ago, Beijing tightened the rules. Suddenly it wasn’t as easy for foreigners to buy property anymore, especially if they lived overseas. While the new rule makes it a little harder for foreigners to invest in Chinese property, it isn’t all doom and gloom. Although a lot has been said and written about the Chinese property market, many investors are disheartened by the confusion of information in the market.

Conflicting information

Here is what a forum member stated about the buying process. For the purpose of this article we have transcribed the statement:

Before you can buy in China you will need to apply for a Chinese name, because the Chinese property register only accepts Chinese names. Apparently this is the only prerequisite to owning property on the Chinese mainland. As with all property investments it is always recommended to deal with a lawyer who can act as your Power of Attorney, especially if you don’t live in China. It will assure you that your interests are well looked after. While Hong Kong is red hot on fire right now (especially on Hong Kong island) Shenzhen is out of bounds to non-resident foreigners. Overseas residents are not permitted to buy property there. To do so you will need to live in Shenzhen and if you do, you are only allowed to buy one property. There are no problems with smaller neighboring cities such as Dongguan and Zhuhai.

Here is the thing though: according to the new rule mentioned earlier, overseas residents can only buy residential property in China with the following prerequisites:

  • You would have to be a legal resident of China for a minimum of one year while either being employed or as a student.
  • Also, you will be limited to owning the one property and have to make this your primary residence in China.
  • There are somewhat less restrictive rules for residents of Hong Kong and Taiwan.

Now, if you note the following excerpt from the new rule, you can see that messages are indeed conflicting, therefore it is no wonder that people are confused. As far as we believe, we rather apply the rule of the source than follow a comment from a forum that sounds rather informed but has massive holes all the while. Here is the excerpt of the Chinese rule:

This means foreign companies and individuals can own real estate in China only through a Foreign Invested Enterprise (FIE), such as a Wholly Foreign Owned Entity (WFOE) or through an Equity or Contractual Joint Venture (JV). Residential property not for personal use is considered commercial real estate and its ownership is similarly restricted. This is true even if the residential property is not rented to third parties.

Hong Kong on the other hand seems to have easier laws since it is based closely on the British system. The common law allows anybody to buy real estate, but this could come at a huge cost since real estate in Hong Kong is very expensive. Investors might be lucky to find bargains amongst the more older buildings but even then some unknown factors remain.

condos-in-beijing | credit:keso(flickr)
Luxury Condo Development in Beijing (credits: keso)

Will there be changes in sight?

An interesting article titled “Shrinking House Sales and the Fear of ‘Deep Adjustment’ Across China” was published last month. In it, the author was talking about the reality of shrinking real estate sales throughout China and how this could potentially affect prices and in the end the economy. It seems that right now it already is affecting markets. Many developers also struggle to acquire necessary funds needed to finish constructions and many properties are standing empty. Perhaps this turn of events will prompt the Chinese government to ease on the current investment laws when they realize that it could potentially damage their stability. According to this article, housing supplies in Beijing and other parts of China (formerly quoted as boom towns) has since outgrown the overall demand. So here is the question we ponder at this stage:

Could it be possible that the declining real estate prices in China will lead Beijing to revert back to the old rules?

Doing this would make it a lot easier for foreigners to buy Chinese property. At present we wait for the Olympic Games to roll out, but what happens when the Chinese go back to their usual life, when the tourist are gone and the worlds eyes are no longer resting on China?

What do you think? Let us know.