Thursday, October 4, 2012

Real estate crisis in China ?

We hear about a real estate crisis in China?
Is this true ?

The Chinese real estate market has still many good days to come:

  • Chinese countryside population still continues to migrate to a few main cities
  • All Chinese people dream to own an appartment.  To illustrate this, a Chinese man will not easily find a wife if he doesn't own an appartment! Many Chinese women or their family will check this...The Chinese government offer important helps to help Chinese purchase their first appartment
  • Many Chinese cities continue to grow and build. Many construction are directly or indirectly financed by the government. These recent years subways get built in many cities throughout China (Qingdao, Dalian...)
The real estate market is complex and it is important to understand it.

For Changsha city:
It builds 6 to 7 subway lines. It has "only" 8 millions inhabitants and it is the capital of Hunan Province. Hunan Province counts 65 millions inhabitants. Changsha will merge with its two neighbouring cities, Xiangtan and Zhuzhou and will have a total of 12 millions inhabitants!
Once you know where the city will extend you can anticipate the good opportunity on the real estate market.

However you should take care when investing in Chinese real estate.
Some advises:

  • Many buildings are built very quickly and they don't have a good quality. After a few years, they get old: water leak, cracks on the wall...

  • In order to benefit from a better price, it is common to buy the appartment before the end of the construction. In China it happens that the construction will never be finished! Check the reputation of the construction company
Some developers will take the money and run! It was common that the developers didn't have enough money to finish the construction, they relied on bank loans, government help and appartment sold in advance. Hopefully this is now less common. In fact I heard that the biggest fortune in Chinese, real estate lords started with no money and a few good contacts. They receive loans with zero interest from banks during Deng Xiaoping era! 

  • You should check the appartment charges
If you buy some villas, charges could be really high. You need to pay an important staff. If you buy an appartment in a building, the public parts could become a mess: no cleaning (countryside workers don't know how to clean and receive no training), no taking care of stairs...

  •  You should check the building size
Chinese people value high buildings. But this trend will change soon. Now villas emerge everywhere...

  • You should check the location
Get a map of subway and administrations (government then cities administration). Check the nearby universities and companies, industrial zone.

The real estate creates many jobs : young people distribute leaflets, migrants workers in the construction, advertising agency… Real estate has a lot to do in Chinese economic growth model: new buildings= more money= more jobs. The government controls the price and the land available for new constructions or for agriculture.

The billboards ad for new appartement reveal how Chinese consummers think. You can see luxury cars, gold, wine, the Eiffel tower, foreigners wearing suits... you can read: the God Mansion, happy few, new world...

However these advertisments change as Chinese mentality changes. I will explain this in another article.

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