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Investment in property has been recognized
as the unfailing means of acquiring wealth. The phrase
‘safe as a house’ is clichéd. Yet,
it is the only truth in the context of return on investment
scenario. Return on investment in property is a slow
process. However, it is an investment that never fails.
History also testifies to the fact that investment
in property is a minimal risk investment. The return
from the property, services the investment. The net worth
grows over time and generates income for further investments
in property.
Like any other investment, Property investment is a skill which has to be learned. The investor must be aware that there are risks attached to any kind of investment. He must also consciously acknowledge the fact that during the process of investment the risks attached seem to be magnified. He must also accept that, the right choice of property, combined with considered management are absolute essentials in any property investment. Property investment is a serious business that requires the right kind of commitment.
Before actually launching into the purchase of a property, the investor must be clear as to the purpose of investment. If investment may be for:
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Personal use
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To buy and Let
The purpose will determine the type and location of the property. In the former instance property may have to be located close to the place of work or near an educational institution. The type of property may not per se be of importance. Its location may be important. In the latter case all aspects of the property assumes importance. It is a property purchased as an investment and the investor expects a return on property investment.
Investment Property should be selected keeping in mind the following environmental factors:
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High employment area
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Attractive buildings and surroundings
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Public Transport facilities
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High capital growth
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Developing areas
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Low maintenance costs
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High demand by letting agents
The Return on Investment (ROI) expected will include factors such as
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Appreciation of the asset
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Regularity of rental income
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Long term stable tenants
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Care by property managers.
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Tax benefits
Investing in foreign countries requires an
understanding of the laws and systems as it impacts on investment
by foreigners. It also requires an understanding of
the socio-economic fabric of the country as it will have a
bearing on the value of the property.
Therefore, before investing in property in
a foreign land requires the investor to stay in the country
for some time or a study of the socio-economic-demographic
and political setup of the country in so far as it impacts
on foreign investment in the country.
The housing market in China is undergoing a boom.
Billions in foreign investment is being channelled
into the country and the number of well off Chinese is also
growing. The demand for small apartments is on an uptrend.
The overall growth rate is determined at 20 percent for successive
years.
Private ownership has been abolished in China.
All urban land belongs to the state, while rural land is owned
collectively by collectives who are answerable to the central
or state government. However, the land use right can
be transferred and hence much of the real estate business
activity is centred on this concept.
In 1988 the amendment of the Constitution
established that a land use system can be on a leasehold basis.
Foreign investors have to pay for the use of the required
site. Theoretically the state can claim a part of the
land back, but in practice a lack of legislative provisions
makes it difficult to do so.
Regulation of land use by foreigners is in
two parts. First the central Government provides several
guiding principles in Interim Rules 1990 on sale and Transfer
of State Land’s use rights in Cities and Towns and the
regulations of 1990 on Development and Management of Tracts
of Land by Foreign Investors.
Secondly the Local Authorities have promulgated
regional policies for providing incentives to foreign investors.
The State Land Administration Bureau is the agency that is
the regulatory authority responsible for the implementation
of the above rules.
All land is registered and recorded by it
and a land registration certificate is issued for any specific
use. This does not confer any right to trade it in the
primary or secondary market and all rights are conferred by
application to the Bureau only. This implies that transfer
of the right can be done only with the approval of the Bureau.
Prior to China’s accession to the WTO,
the real estate was categorized in the version of the Foreign
Investment Industrial Guidance Catalogue as a ‘restricted’
industry and foreign investors were not permitted to establish
foreign owned enterprises in the real estate sector.
The revision of the catalogue in 2002 reflects China’s
‘encouragement’ to foreign investments.
Foreign investors can now enter into joint
ventures in China and can enter into high level real estate
projects that have unit construction costs exceeding double
the average for the same city. However, tract land development
is categorized as restricted and foreigners can only participate
in such projects in the form or equity or cooperative JVs.
Not withstanding this, China has more than 5000 foreign invested
real estate enterprises which constitute 20% of all real estate
enterprises in China.
The Income tax on enterprise with foreign
investment and foreign Enterprises is 33%. Construction
and transfer business tax is 3% for construction and 5% for
Transfer. Property ownership Urban Real Estate Tax is
1.2% and Land Appreciation in Transfer of Real estate Properties
adopts a four level progressive rate. Transfer of land use
rights and sales and purchases of Real Estate Deed Tax is
1.5-5%.
A foreign investor who wants to pay land
deposit to related administrative agencies of land before
establishing his enterprise should apply to the State Administration
of foreign Exchange(SAFE) for opening a ‘Provisional
Land Deposit Account’. All remitted Foreign Exchange
should be kept in this account for paying land deposit and
all remittances to the State authorities should be made from
this account only.
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