ExtremePerspective

Common sense perspectives and finding a way to retire

Chinese Real Estate

Posted by Paul on December 10, 2006

I’ve mentioned that my wife is from mainland China. She is typical of the growing middle class there. She managed to buy a “house” (what we would call a condo) in the beautiful, rapidly growing “small” (my wife calls it small – only 6 million people live there!) city of Ningbo. She is a typical frugal Chinese – made a large downpayment, took out a small mortgage and paid it off in a few years. Chinese tend to be thrifty savers and always have lots of cash – often US$. Its not unusual for a Chinese to be carrying 50, 000 yuan or $US5K. Her home has appreciated rapidly and worth over 1M yuan now. She was also able to save enough money to buy a condo for her parents in their home town and paid cash for it – not something most Americans ever can think of doing.

We took a vacation to a city called Sanya in the southern most province of Hainan Island a couple of years ago. It was absolutely beautiful and we thought about buying some property there. We found an oceanfront condo on the 10th floor overlooking the ocean for the meager sum of ~$US100K. I have family that owns oceanfront in the US and am aware of the large cost of this type of property. I really wish we had been able to purchase that property in China at that time but the agent wanted the cash in 7 days and we didn’t really know how to get it. I can imagine in 10 years the property may be worth 10x what it sold for.

I found an interesting report at Instapundit on the Chinese real estate market. Its rather lengthy but informative. The main issue in China is the lack of laws governing anything (you should see how people drive – anyway they want and no real police enforcement!). You also can not own land in China, so when you buy a property you get a 70 year lease on the land. Since this is a relatively new law, no one has reached the end of their lease yet and so there is uncertainty about what will happen.

From our standpoint the main problem with real estate in China is moving funds out of the country if you sell your property. China does not allow citizens to take much money when they leave the country (I think the limit is $US3000) and you can’t take Chinese currency. So my wife just rents her home out for now and gives the money to her. Hopefully, China will open up more in the coming years and we can transfer money out of the country.

Unfortunately, a foreign citizen cannot go to China and just buy property. I have come across a community of US citizens that are married to Chinese nationals and many of them are investing in China through their spouses. I’m not sure if we will go that route or not at this time. We are focused on building our US real estate business at the moment.

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