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Frequently asked questions
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| The questions below are a selection
of those most frequently asked. Please click on the questions to be
taken to the relevant answer! |
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Where actually is Shanghai? |
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What sort of city is Shanghai? |
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What are the main reasons for
investing in Shanghai rather than somewhere else? |
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What sort of property is there in
Shanghai? |
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Can foreigners own property in China? |
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Is it possible to get mortgage
finance? |
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Is it safe to own property in China?
What are the risks? |
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What sort of property is best for
investment? |
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What are the transaction costs of
buying in Shanghai? |
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How do you find tenants in Shanghai? |
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How do tenancy agreements work in
Shanghai?
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How do I manage the purchase from so
far away? |
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How do I find and manage tenants
from so far away? |
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Do I need to visit Shanghai to
complete the purchase transaction? |
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What about the language barrier? |
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What sort of capital gains could I
make? |
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What sort of rental income yield
could I expect? |
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What about taxation? |
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Is it easy to sell property after
I've bought it? |
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Can I get my money back out of
China? |
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Is there any currency risk? |
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Is there a minimum investment limit? |
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How do you source properties
suitable for investment? |
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Is there any risk that the Shanghai
property market is overheating? |
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Where actually is Shanghai? |
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Shanghai is on the east coast of China, on a
tributory of the Yangtze river, close to the mouth of the East China
Sea. Shanghai is China's main port city, a major commerical hub for
the whole region. |
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What sort of city
is Shanghai? |
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Shanghai is a huge, sprawling metropolis. The
official municipal district covers almost 2,500 square miles,
although only about 116 square miles of this is built-up and densely
populated. The area is expanding rapidly... the skyline is full of
cranes and new skyscrapers. And that's just on the surface. The
government is spending a fortune on a vast new underground tube
system, to try to ease the congestion up top.
The streets are busy like any western city - and in fact there are
plenty of western brands starting to take root there. You can even
take a break from shopping in a Starbucks coffee shop! |
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What are the main
reasons for investing in Shanghai rather than somewhere else? |
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Shanghai is a rapidly growing city, and isn't
showing any signs of slowing down. If anything, the inward flow of
people and capital is increasing. And there is still a huge amount
of catching up to do with comparable cities - such as Hong Kong,
Singapore, Tokyo, London and New York; property prices in Shanghai
are about a third of the level in London, and the average
transaction is about a tenth of the value of New York. The Chinese
want Shanghai to be the commercial and financial showcase for the
whole of China, and it is already well on course to becoming a
global city. There's no reason why property prices can抰 rise to the
same level of other global cities over the next few years. |
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What sort of
property is there in Shanghai? |
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Just like in other modern Asian cities, the more
affluent 'middle classes' preference is for modern, high-rise
apartments in good areas of the city, rather than the low-rise,
suburban terraces of London. A lot of the new developments have
facilities like a gym or a swimming pool or communal gardens. The
apartments are finished to a very high standard, often with brand
name appliances. The ideal buy-to-let investment in Shanghai is a
well decorated and furnished two-bed apartment in a top location
somewhere in or near the centre, ideally with a good view over the
city.
Of course, there is a much wider range of property, but this is
probably the most suitable for buy-to-let investment. More
adventurous investors might be interested in an old pre-war era
villa in the old French Concession or International Settlement
areas; but these are less rentable, more complex to purchase, often
need serious renovation, and command a premium. |
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Can foreigners own
property in China? |
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Yes! Foreigners and locals now receive much more
equal treatment. All land in China is owned by the government by
default, so what you're actually buying is a leasehold. In the past
there have been problems with the authorities throwing people out of
their property, because they want the land for something else. But
most of these problems are behind them now, as new legislation has
been introduced to protect residents' and investors' rights. |
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Is it possible to
get mortgage finance? |
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Yes! There are plenty of banks in China willing
to lend money to foreigners, including some familiar names such as
HSBC. Normally you need to put down a 30% deposit. Lending can be in
local currency (Renminbi) or US Dollars. Rates are variable, capital
repayment only (although they are starting to think about 'interest
only'), and the term depends on the type of property and the age of
the borrower. Similar checks and lending policy apply as in the UK:
identification and proof of residency, and proof of income. |
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Is it safe to own property in
China? What are the risks? |
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It is safer to own property in China than ever
before. New legislation protects the rights of private owners and
investors. China is desperately keen to maintain the phenomenal
growth that it has experienced over the last few years. This growth
is largely domestic, but also thanks to the huge inflow of 'foreign
direct investment', or FDI. The authorities know that if they do not
look after investors' interests, a large part of which is respect of
personal property rights, then the flow of FDI will dry up, and
economic growth will be damaged. They have every incentive to look
after foreign investors, as looking after your interests is very
much in their interest.
One small but specific risk of buying from developers is the risk
that the developer might go bust before completion of the project,
and you end up losing your money. However, the authorities are
tackling this by tightening up the rules on financing developers, so
that they cannot 'over leverage' their operations. Our realtors in
Shanghai are also very careful to only deal with developers who have
a sound track record.
The other risks associated with owning property in China are no
different to the risks associated with owning property anywhere:
loss of tenants, unruly tenants, unforeseen maintenance
requirements, etc. The best way to deal with these problems before
they happen, is to buy the right property, appoint the right
managing/letting agent, and find the right tenants. All part of the
service that we offer... |
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What sort of property is best for
investment? |
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The best type of property for investment is a
two-bed, modern, apartment in a good part of town. This is where
there is most liquidity and reliable demand from the young,
aspiring, professional, middle class. |
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What are the transaction costs of
buying in Shanghai? |
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The transaction costs involved in the purchase
of property in Shanghai are similar to those in the UK: mortgage
arrangement fees, survey, conveyancing, stamp duty (yes, they have
stamp duty too...), and various other bits and pieces. Including our
fees, the total cost of purchasing the property will usually amount
to about 8-9% of the property value. |
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How do you find tenants in
Shanghai? |
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Same as you do in the UK - you appoint a letting
agent to find tenants for you. They market the property, show
prospective tenants around your apartment, arrange the tenancy
agreement, and deal with any problems while the tenant is actually
in your property. |
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How do tenancy agreements work in
Shanghai?
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Similar to the UK 'Assured Shorthold Tenancy'
agreement. |
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How do I manage the purchase from
so far away? |
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We, together with our realtors in Shanghai,
manage most of the process for you. That saves you the trouble and
cost of commuting to Shanghai to sign the various documents involved
in the process, some of which need to be signed and witness by local
officials. In order to facilitate this service, investors have to
sign a Power of Attorney to allow our realtors in Shanghai to act
on your behalf. |
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How do I find and manage tenants
from so far away? |
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In the first instance, appoint a good managing
agent! We will assist you with this too. We will then handle the
day to day admin and deal with any tenant issues. If there is
anything that requires your input, you can deal directly with us (we will make sure that you have an English-speaking
contact). Of course, we are always available to help out, if
necessary. |
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Do I need to visit Shanghai to
complete the purchase transaction? |
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There is no need to visit Shanghai to complete
the purchase transaction, because the whole process can be managed
remotely from the UK. But, if you do want to visit Shanghai to get
involved with things more closely, then we can assist you with
making the appropriate arrangements.
If you would like us to show you around Shanghai before you invest,
in order to get a feel for the city, then we can arrange accompanied
'inspection visits' for individuals or small groups of investors. |
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What about the language barrier? |
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You mean you don't speak Mandarin?! What were
you doing at school! Actually, the real locals speak a dialect
called 'Shanghainese'. Our realtors in Shanghai all speak English
- in fact, some of them ARE English. All the contacts involved in
the process, from the lawyer to the letting agent, speak English. |
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What sort of capital gains could I
make? |
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Difficult to say, but property in Shanghai is
about one third the price of comparable property in Hong Kong,
Singapore, Tokyo, London or New York. Shanghai is on course to join
the club of 'global cities', so there's no reason that property
prices there won't rise to the same kind of level. |
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What sort of rental income yield
could I expect? |
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Typically between 6% and 15%, depending on the
type of property and the location. |
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What about taxation? |
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An 'income tax' is charged at source on the
rental income, and it is the managing agent's duty to make sure this
is paid. If or when you sell your property, you would normally be
subject to Chinese capital gains tax of 25% (20% if it was an
owner-occupied property, plus 5% 'business tax' because it is let
out). However, at present there is an exemption in place for private
ownership of residential property that reduces CGT to 0%. It should
be noted that this exemption could be removed at any time.
When you report your gain to the UK Inland Revenue, you will be able
to make use of the existing 'double taxation treaty' to make sure
that you don't get taxed twice; you will just have to pay the
difference between the UK tax level and the amount you've already
paid in China.
That's our understanding of the current rule; but bear in mind that
the rules may change (in the UK or China or both), and this is
something that is entirely out of our control. |
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Is it easy to sell property after
I've bought it? |
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If the price is right, it should be fairly
straightforward to sell your property in the secondary market. It's
a vast city, and there will always be buyers and sellers. The
important thing is to buy a property that is likely to be popular. |
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Can I get my money back out of
China? |
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Currently the rules are a little bit tight, and
you have to be able to prove that you're only taking out money that
you made resulting from your original investment. This is
straightforward, as long as there is a clear audit trail of
invoices, receipts, statements, etc. Just keep good records, and you
won't have a problem.
Actually, it's likely that the rules on money flows will relax over
time, as the exchange rate controls.
Again, this situation may change, and is outside of our control, but
conditions are more likely to move in your favour rather than
against you. |
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Is there any currency risk? |
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Yes, although it is our view that the risk is
likely to be in investors' favour, rather than against them. If you
are based in the UK then your reference currency is Sterling.
China's local currency is the Renminbi, or RMB. The RMB is currently
linked to the US Dollar, although there is increasing pressure for
China to undo or move this link, as it is commonly held that the RMB
is artificially undervalued. In fact, some experts are saying that a
revaluation is likely in the not too distant future. If this
happens, then investors with property in China will make a windfall
gain on the currency, because the RMB, in which their property is
denominated, will suddenly be worth more.
RMB is
increasing in value now, and more of economist think it will increasing
continually in the future. The investment chance is coming on.
[News:
China scraps yuan peg, yuan to US dollar rate
adjusted to 8.11,] |
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Is there a minimum investment
limit? |
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There is no minimum investment limit, although
there are transaction costs involved which mean that higher value
purchases are more 'financially efficient'; the purchase of a small
property is just as time consuming as the purchase of a large
property. As a rough indication, investors should have a minimum of
about ?0,000 to invest, which will cover the deposit and all the
costs of buying an apartment. |
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How do you source properties
suitable for investment? |
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Our realtor in Shanghai have their ears very
close to the ground. They are local, so they talk with developers
and clients every day. They are aware of all the new developments,
and also what is available in the secondary market. They do detailed
research on location, local facilities, aspect, local infrastructure
developments (e.g. new tube stations), other forthcoming
developments in the area that may have an impact, and even on the
amount of sunlight and the view out of the bedroom window! Every
single property that we recommend to our clients has been thoroughly
checked out. |
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Is there any risk that the
Shanghai property market is overheating? |
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Any market can be volatile, and the Shanghai
property market is no exception. There will be ups and downs. It is
possible that the market may overheat in the short term, although it
does not look like that is the case currently.
However, property prices in Shanghai are about a third of the level
of comparable property in other cities such as London, Hong Kong or
New York. Demand continues to grow due to the huge inflow of people,
and also the desire to upgrade as wealth and incomes rise. So,
medium to long term, Shanghai property prices have a lot of ground
to make up, which would suggest that buying now in this rapidly
up-and-coming city is a one-way bet. |
