Steve Hemingway

Did you know that 80% of urban Chinese houses are owner occupied? Actually I think there are very few actual houses, but if 'apartment' is substituted for 'house' in this sentence, it would appear that this is true, according to the Economist.

It is true that house prices have risen by 30 since 2002, but with GDP rising at a rate of around 10% per annum this is no less than one might expect. In fact the ratio of house prices to disposable income has fallen by 25% since 1999.

As I have mentioned elsewhere, I spent last week visiting China to look at properties for investment. Certainly the market seemed to be pretty solid to me, but it is nice to see some professional economists give their imprimatur.

The authorities seem genuinely interested in controlling house price inflation. The most obvious way in which they do this is to lay down infrastructure at a furious place and permit developers to build factories, offices and apartments at a commensurate pace. The other way is to restrict foreign ownership of real estate, and to impose various transaction and capital gains taxes which bite if property is sold within five years of purchase.
References:

Economist article on China Housing Market.

The China Economic Quarterly.

One thing that is completely essential if one is to purchase property in China is some money to pay for it. As I plan to explain elsewhere, the best approach to this is to grant Power of Attorney to a local representative who can sign documents and transfer funds to the vendor.

This is all very well if the Power of Attorney is in place, but initially there are big problems transferring money to an unrelated person in China. There are two problems. One is that UK banks are reluctant to transfer to China as has some kind of elevated risk status. The other problem is that when they do the money takes ages - up to two weeks - to arrive. We are not talking about banks that keep their ledgers using quill pens, or even sable-hair brushes - these are banks that can set up a new account on their computer systems within ten minutes of the customer walking in through the door.

I spoke to a helpful, English-speaking, employee of HSBC Hong Kong. I was advised that as long as I bring along my passport and proof of identity I can open a bank account at any branch of HSBC in Hong Kong, and that I can have this account in HKD or RMB.

Take a look at this page on RMB credit cards and this page on general RMB banking.

I had toyed with the idea of using Citi as an alternative, but it seems clear that HSBC are the leaders in this field.

To buy a property in China I have been advised to give power of attorney to a local proxy. Obviously this requires that one locates a local in whom one can place a huge amount of trust. In my case I trust my employee Lua very much, and have chosen to grant the power to one of her close relatives.

The power of attorney must be in Chinese, of course. The initial draft, translated, of the one I have been looking at is as follows:

* make decisions of sale price,
* sign for buy/sale agreements
* assist buyer(stephen) to do all paper work
* assist buyer to deal with the mortgage
* receive rent and pay tax on ur behalf
* all other aspects which relate to the above

My initial view is that 'make decisions of sale price' is not only grammatically dubious, but also unnecessary.

Shenzhen is an explosively-growing town in Guandong Province. I was going there on my next visit to China. I had been advised by foreigners and Chinese alike property prices are set for even faster accelerating growth. This is in part due to the completion of the western corridor bridge linking Shenzhen with Hong Kong.

The authorities must have had the same idea. I was alerted to this article on restrictions of foreign property ownership on Singing Pig. This probably rules out my buying in Shenzhen, but is likely to boost demand in alternative locations. I would imagine this means other Pearl River Delta towns, particularly Zhuhai.

If you would like to discuss this, please send me an email or call.

This entry needs a lot of tidying up, but I thought you might find the links interesting. Steve.

Chinese Bank with Large Western Ownership

RMB accounts for HK residents (maybe visitors)

FT article on Chinese private property law.

RMB exchange rates.

Problems with sending money to China.

Buying process for Chinese property (specifically Shanghai). This implies that Chinese bank accounts with internet access are available.

Interesting article on Chines real estate market as a whole.

Zhuhai Apartments advertised on an english-language website.

Shenzhen apartments on Sublet.

Lawyer with offices in in Macau, but they look expensive.

Page explaining what is needed to own property in China, and something on tax

World City Rankings for China Cities - Zhuhai comes out with a silver medal.

High proportion of Bejing apartments being purchased by foreigners.

New Shenzhen - HK bridge. And its high cost.

http://www.iht.com/articles/2006/06/15/news/rebuychina.php

measures to stabilise real estate, about shanghai, where prices
are much higher.

http://www.chinadaily.com.cn/english/doc/2005-05/13/content_441874.htm

same kind of story - from 2005

http://www.kotlermarketing.com.cn/chinese/en/2007/0425/692.html

long interesting article about opportunities for overseas real
estate development, aimed towards the
actual real estate
development company - e.g. MacQuarrie.

http://en.allexperts.com/q/Non-Laws-2525/real-estate-law.htm

This answers the question
What is the process of selling real
estate property in guangzhou china and how long does it take?
but
the answer is unreadable on this pc.

http://english.sohu.com/20060119/n227731745.shtml

article from Jan 2006, saying that prices had fallen in some
areas. that prices in Bejing were
driven up by the number of
universities there, that prices in Shenzen were driven by purchase
by
hongkongers, that even in Shanghai some properties were going up.

http://www.daft.ie/china/property_for_sale/
Irish
website offering expensive apartments in mainland china for sale to
(presumably) Irish investors.
this is actually re-sold from
Property Frontiers, see below.  

http://www.propertyfrontiers.com/countries/china.aspx

property frontiers seem to sell properties from all around the
world. It would be interesting
to call these guys, even see if
they want to do some kind of joint venture, because
clearly
properties in Zhuhai are much more affordable than those in Shanghai.

I will be in an airliner in 24 hours time, speeding to China to view lots of properties around Guangdong.

I will be signing documents, notably Powers of Attorneys. I will secure myself a suitable Chinese name [insert name here].

I will be able to receive emails. If you would like me to find you an apartment to invest in, now is the time to send me an email. Just ping off a note to steve.hemingway[at]gmail.com.

I have now returned from my second visit to the Chinese mainland, from Zhuhai and from Shenzhen, both in Guangdong. On this occasion I opened another Chinese bank account, tried, unsuccessfully to obtain a mortgage on a property, obtained a Chinese Power of Attorney granting the right to a PRC national to act on my behalf in matters relating to the purchase and financing of residential real estate, and got myself a notarized Chinese name (He Ming Wei), which I'd love to be able to type in Chinese but can't. I also learned that lawyers' fees seem expensive compared to all other costs of doing business, even in China.

I also discovered how it is possible for me, as a foreigner, to trade on the various PRC stock exchanges, over the internet, I opened a HK bank account with 24-hour phone and web access, with multi-currency (including RMB) facilities. I discovered that it is in fact possible to obtain credit on wholly-owned properties in China, that there a number of Chinese banks that have internet banking (including the Guangdong Development Bank, now owned by Citibank).

I also was lead to believe that a HK-registered company was treated for many purposes as a PRC national for the purpose of owning property. This is something I need to verify, as the exact status of HK companies and residents is, I found, difficult to pin down.

I negotiated a lease on one of my properties with a State Owned Enterprise that wished to become the tenant of the office that they had previously occupied as an owner. The lease was, to me, pretty much the same as a commercial lease in the UK but was, if anything, more favourable to the landlord. For example the interest penalty on late payment of rent was set at 1% per day and the total number of days' arrears that the tenant was permitted to accrued during the course of a year was only fifteen. I am assured that all leases, commercial and residential, have to be registered with the appropriate registry which will somehow help in the event that the rent is late.

I had several interesting discussions on where in China was best to invest. Chongqing came up several times, as did Chengdu. One person even suggested that I would be better off investing in Guangzhou. My own instinct is that Chongqing is the most promising alternative to Zhuhai, but that the connections I have built up with the latter currently outweigh the higher capital growth that might be available in the former, although I will keep an open mind for the moment. The critical issue for me is the scale of my Chinese property investments. As I have already indicated, I am actively seeking to recruit a syndicate who would be prepared to enter into a pooled investment with me, and investors who wish to purchase as individuals but would like me to act as an agent to arrange the legal paperwork required to register properties in their own name.

Google adwords produced my first serious enquiry. An exporter of Chinese goods, called, having seen an adwords link alongside some content in the Shanghai Daily News (as far as he could remember).

He had been involved in purchasing and refurbising upmarket apartments in Shanghai. He didn't know much about Zhuhai, although he was aware of Macau and its status. He asked some sensible questions, including the hardest one of all, which was about my own motivation and objectives.

There are actually a number of services that Freshfield/Herts Lettings could provide to a would-be investor in China:

1. membership of a syndicate which pools funds to purchase a diversified portfolio of Chinese properties. This could be set up in a number of ways, but the cheapest and simplest would probably via a PRC national who held the properties in trust for members of the syndicate. Ideally the trustee would be a member of the syndicate and well-known to them. This could only work with a small, close-knit group: even the most carefully-drafted trust deed would offer only limited protection against a trustee who was determined to misbehave.

2. access to an agency service which would faciltiate UK investors invest real estate in Zhuhai (and possibly elsewhere in Guangdong) . This would be a natural extension of my existing business, a letting agency, although it would extend to sourcing new properties which I do not do at the moment. My interest would in the fees I could earn. My preference would be for explicit, transparent fees paid by the client (investor) but I can see that there would be a pressure to share commission with the PRC-based agent handling the sale, and possibly the financing of it.

3. shares in a property investment fund, probably structured as a Hong Kong registered company, which would be to invest in mainland properties. In this case Freshfield would charge a management charge with possibly some carried interest, private-equity style. This is the only service where the investment is geared without the investor having to take on debt personally.
   

I would very much welcome your reaction to these ideas, and in particular, an indication of which, in your view, would add the most value.

A search for Property in mainland China now goes straight to my page on buying property in China. The page still has a PR of zero, but still gets in the searches I want to cover.

I am getting a steady stream of enquiries now; the experience has restored my faith in Google as a channel to get business through.

I am in discussion with a lot of people about building up the China property project, to the extent that I am spending less and less time on the UK side of Herts Lettings. I am going to have to fully split the businesses soon.

In the event the announcement didn't come. It seems to have had a major impact on Shenzhen property prices, driving them down recently - although there seems to be no agreement on the exact cause of the reversal of fortune.

I have sent out a few emails to registered investors suggesting that if they wish to beat the deadline they should pick a property and call us. In fact, perhaps sensibly, nobody did. Whether the deadline was real or not, there was certainly a rush to buy: I was asked to choose between three fairly ordinary small apartments in Gong Bei, but 24 hours later when I contacted Lua with my guidance she told me that they had all been sold!

The Adword advertising continues to bring emails from around the world from individuals who seem to know a great deal about the China real estate market. I have been thinking about appropriate structures for collective investment: REIT vs non REIT, listed vs non-listed, tiered structures with holding companies in tax havens etc. etc. I remain agnostic on the various claimed benefits, but not on the soundness of the China economy. Of course eventually the growth will run out of steam, but with GDP growth about four times that of the strongest growing western democracies it must have some way to go.

I have always liked bulletin board sites like Gumtree or Craigslist. I think they have a tremendous business model and will have entirely replaced the classifieds pages in local papers in the next half a decade.

I have found them very useful for recruitment. Compared to the hundreds of pounds it takes to advertise on Monster or similar sites with huge advertising budgets they are tremendously effective. My esteemed colleague Lua, of whom you have read many times, found Herts Lettings via Gumtree.

These sites do not, as yet, exist in mainland China. At least not that I can find. In Shenzhen however there is the admirable Shenzhen Party site, especially the jobs section. I put a small ad on this site, which used to be viewable at this address, but now seems to have disappeared. The text was:

I am looking for a Guangdong-based partner who can help me find investment opportunities for UK real-estate investors.

You will have to speak excellent English and work well under minimum supervision. You will have to be prepared to travel regularly to the UK, but your base will be China.

If you have legal or real estate background, or experience of working with a European employer then this will be positive.

Over a couple of weeks it was read 750 times (i.e. clickthrough from title) and produced 34 responses, the majority of which were quite suitable for the role, certainly as described (I forgot to specify that Mandarin Chinese was a must, because I assumed that I'd get inquiries exclusively from locals, but in fact got a significant proportion from foreigners working in Shenzhen or Guangzhou.

I will wait to discuss with Lua the final selection - not least because the role is the one she has been performing by flying back and forth to the country. I still don't know exactly how this will work out, because I feel I really need to provide some kind of office space and physical base there.

I have had much less success with Gumtree in London where I have been looking for web designers and accountants. If you know of anyone in these categories, please get in touch!

The average delay between accepting an offer and completing the purchase of a property in the UK is supposed to be three months. My colleague Lua was in China recently buying properties for me. On one occasion she made an offer for a property on Thursday, and by Sunday the property was not only sold to me, but was already rented out and generating income.

The market in China is quite amazing. Properties stay on the market for a matter of days. The whole process of transfer of title takes only weeks. The buyer is required to pay a deposit - say 10% - to the estate agent. The balance of the purchase price is due within weeks. If this is not forthcoming the deposit is lost. The estate agent is responsible for the whole process of registering the transfer with the appropriate government department. It also acts as an escrow agent, and accounts for any taxes payable, although the buyer must keep receipts for the taxes that have been paid or there can be problems when it comes to sell the property again.

Amazingly, estate agents in China will provide bridging financing for the buyer, especially one which has proved a reliable customer in the past.

Unlike in the UK, the buyer pays the estate agent's fees. Of course, estate agents' fees in the UK are borne by the buyer. They are only formally paid by the seller. Having the buyer pay the fees is quite an advantage, because the buyer can negotiate the fees as well as the sale price. Fees can be up to 3%, but these cover all legal expenses and mortgage arrangement fees. We have been successful in negotiating a rather better deal than this, but of course we are not in a position to obtain financing in China.

Pensions seem a great thing. The government encourages pension savings by allowing us to save out of our gross income and by exempting pension savings from income and capital gains taxes.

So far so good. However, pension saving bears a huge burden of regulatory compliance. There are high costs associated with employing armies of actuaries to administer and oversee pension savings, and there are heavy opportunity costs of restricting savings to those areas the government deems suitable for pension investment.

I don't think that anybody really knows every rule that governs pensions. There are, as Google puts it 'about 11,200 pages' on the HMRC website that mention the word 'pension' or 'pensions'. I understand that early drafts of the overview of the so-called pensions simplification that came into force in April last year ran to over 3000 small-type pages.

It is not permitted for pensions to invest in residential property, and it is not permitted for pension equity to benefit from significant gearing, and it is not permitted for pension savings in close companies (fewer than ten shareholders). As far as I am concerned, these are not minor restrictions.

It is, it seems possible to invest in overseas companies, and these companies can invest in anything they like, including residential property. They are also permitted to borrow. It has been suggested to me that if I can 'round up' ten investors who would be interested in investing alongside me in a company, for example in the IoM, we can gear up this company and invest our capital in some suitable investment. These investors could invest some of their pension savings, as I plan to, or invest any other savings.

My preference would be for one of the offshore development vehicles set up by Chinese companies to benefit from a reduced Chinese tax charge. These are typically registered in the BVI or similar tax-haven countries, but investing in any Chinese property exposure seems good to me.

If you are interested in joining such a syndicate, please get in touch. I am not offering total democracy, but I will certainly be happy to discuss exactly what the moneys are invested in. As you have probably guessed, I have been in discussion with a pensions specialist about this kind of structure.

I have also discovered that, in principle, the requirement to liquidate the pension investment and purchase an annuity can be deferred at least until age 85. This removes one of the other major reservations I have about increased pension savings.

I have not posted here for some weeks. This does not mean that things have not been happening in China, either in the economy in general on in those parts in which I have an interest. I have purchased three futher properties in Zhuhai. Prices are now increasing compared to the summer and I have had to pay another 500 yuan a square meter. I have continued to invest in the Springfield development which has indicated itself to be in an area of high rental demand. I am continuing to achieve yields of around five percent.

I am in the forthcoming process of registering a Chinese company. This will be wholly owned by my UK investment vehicle. This has proved (like so many things in China) not quite as straightforward to set up as might have been hoped. I have had to get quite a bit of information about the investing company in order to satisfy the Chinese authorities. The good thing is that I have now found an excellent firm that is able to obtain notarized documentation which they will arrange to be pagename=OpenMarket/Xcelerate/ShowPage&c=Page& cid=1007029391440"> postilled
, both by the Foreign and Commonwealth Office, and by the Chinese Embassy. Now I know that the service I require is called apostilling a search in Google reveals hundreds of specialised firms that provide this service (e.g. net/ companyformation/overseas.htm?GCID=S15681x009&KEYWORD= apostille& gclid=CMjX69ONv48CFRAUQgodzlIsYg">this one. I now have contacts who can notarize Chinese names, and Powers of Attorney in Chinese in London. We have templates for a number of Chinese legal documents (especially leases and powers of attorney) so please contact us if you would like some help with these matters.

I will be able to invest via a corporate entity in China. This corporate entity has shares which legally may be owned by a foreign corporate entity. I may set up an SPV in the UK to supply capital to this Chinese company, probably mainly in the form of debt. This should allow UK investors to invest in a UK (or maybe IoM) entity, which I imagine is preferable to investing directly in a PRC enterprise. Obviously, I would be very interested to hear from you if you are interested in providing any kind of finance to this entity.

One requirement of the Chinese authorities is that a company has a real office, out of which it operates, and has directors who are appropriate persons to run it. This is all very scary as I generally feel that the chances of my passing an interview with some inscrutable Chinese civil servants, even with a good interpreter helping me out, is small. I am of course also anxious that the exact business area in which I plan to operate is

I am now receiving rent from all six of my apartments in Zhuhai. The efficiency of my agent there is nothing short of astonishing. In one case the interval between my offer being communicated to the sales agent and the property being occupied by a tenant and actively yielding rent was a mere four days (offer on Thursday, tenant in place by Sunday). I anticipate that void periods will be very short in Zhuhai.

Thanks to some excellent support from my colleagues and associates in China I have made excellent progress. I have not made much progress in the vital area of finance. I would desperately like to leverage my capital. I have a lot of equity in my UK property investment company. My Chinese investment is currently ungeared. If you are an adviser, an investor, a bank - anybody who is involved in the supply of capital - then I desperately need your help. I am principally looking for debt, but if you would like some kind of equity stake then would also be possible. Please call us to obtain detailed information about the performance of my China investments.

I have had a very busy time this week. This is a short note to indicate what I've been doing. I will try add some detail to this entry later, but I there is a >50% probability that I will never get around to do doing so.

I have been staying in Zhuhai from Monday to Saturday. The main objectives of this week are as follows:

1. Set up my wholly-owned foreign enterprise, provisionally called Ying Wei Trading (Zhuhai),
   
2. Meet with some useful China/HK-based contacts such as Fung Kam Wing and David Harris, and David Rawlings,
   
3. Make contact with a developer who might be interested in allowing Herts Lettings/Ming Wei Ltd to act as an agent for UK investors
   
4. Investigate the property market in Zhongshan, Tan Zhou, Dongguan, and Guangzhou, Chongqing and Chengdu,
   
5. Get an update on the state of the Zhuhai market,
   
6. Find out more about the overall China real estate market
   
7. Try to understand more about the rules for operation and taxation of Chinese companies,
   
8. Find some local factories with good, exportable products, but with no export licence.
   
9. Visit and make use of the new office for the company,
   
10. Enjoy the weather and the food
    

On the first task I haven't yet had confirmation that the name is not already registered, but I have found that my first choice (Ming Wei Trading, based on the 'given' part of my Chinese name) is not available. The basic registration of the company is complete, with the necessary forms having been signed by me, the authorised translations of the various documents relating the investor (Freshfield Analysis Ltd.) having been made, the fees paid etc. etc. Inevitably in these matters, communication has been less than 100% successful, with the result that the final registration of the company will be delayed. The main problems were that (a) the capital should have been retained in the UK until the company was ready to go, rather than having been transferred to China, to my account, in anticipation of this and (b) that the company registrar requires a bank reference from my bank. Unfortunately the latter is available in response to a request in writing, signed by the directors, and therefore will take weeks to be prepared.

I have met David H, a very interesting and knowlegdable guy. He gave me a lot of information about the market. He is very well informed about business in China generally and has a lot of contacts here. Lua and I were very impressed by his command of Mandarin.

I met Kam Wing. He has done a huge amount of analysis of investment opportunities in the China market. Like David he is very bullish about opportunities here, and has some very specific ideas about exactly how to maximize his risk-adjusted returns. He was particularly bullish about HK, which certainly has some excellent characteristics: mature market, constrained supply, China proxy, premier league status, common law system based on use of English as a business language.

I have visited plenty of developments, but have not had any discussions with individual developers.

I have visited Tanzhou, Zhongshan, Guangzhou. These are interesting places with some impressive developments - especially Guangzhou - but are a sufficiently compelling proposition for me that I regret my decision to start my China investing in Zhuhai. I am travelling to Chongqing later today, and going to Chengdu the following day.

My light-reading while waiting around here has been
Why China? Why Now?It is a fairly mammoth work, and certainly corrects the impression that I might give occasionally that everything in the China real estate world is rosy. It's conclusions are consistent with my, much more impressionistic, ones, for what that's worth.

I have been given some details of the taxation status of China enterprises. As long as they engage in export-linked activity they seem to get large subsidies. A profit tax is payable, but at a low rate. I have an expert who can give more detail. I suspect that the taxation is municipality-specific, and likely to change without notice.

I have decided to try to act as an export agent for local producers. I have registered licences in quite a variety of activities. I have not yet found any suitable suppliers, unfortunately. This can be done much more efficiently by my Chinese-speaking colleagues anyway.

Ying Wei Trading has a cosy office in an industrial estate very near the new 'Gree Development' iin (I think) Xiangzhou, Zhuhai. It has a nice Gateway PC with a fast broadband connection. If you are every in ZH you are welcome to borrow it! You can even take a nap on the sofa!

I have, as ever, been extremely well-fed in China. One of the better meals was taken at my hotel, the Paradise Hill Hotel, in Jida. I cannot recommend this highly enough. Visit its website, which is much less impressive than the hotel itself.

Interestingly, Zhongshan is the headquarters of Agile Property Holdings, one of the more interesting HK-listed property stocks. Its shares have recently slumped from about 2.5 to 1.8 and look as though they are heading back down to 0.8 where they were a year ago. I suspect that if they hit 1.5 they will be a strong buy.

It is easy to set up a limited company in HK. This is one of the many sites that offer the service at the click of a button. I am thinking of using a corporation to hold property in HK and possibly China. I have been told that it is possible to use a HK-registered company as a way of getting around the restrictions on foreign ownership of apartments in Shenzhen, Beijing and Shanghai. I have not been able to establish this with complete certainty as Chinese estate agents are not famous for their detailed understanding of local ordinances elating to foreign ownership.

HK is a very attractive jurisdiction on account of its Common Law tradition, English Language basis and low-tax policy. Corporate taxes are applied only to activities within HK itself, so establishing a HK company to do business in China should not result in any tax payable to HK authorities.

Costs are reasonable, although financial reporting requirements are quite strict, at the moment. I am holding back from spending more money on another overseas incorporation now, but if anyone would like to share the costs of a corporate veil then please get in touch.

I have always been enthusiastic about ownership of residential property through a corporate structure. I now believe that HK incorporation would have been a better bet for me than UK incorporation, but there is no point in crying over spilt milk, or sunk costs.

Chengdu is the capital of Sichuan Province. It is flat and chilly (at least in November), but beautifully laid out and very pleasant, in terms of air quality, food, service and transport.

Apartments are somewhat lower-rise than Guangzhou, or Chongqing, and are often well maintained. The city has generally more settled, almost genteel feel, compared to the wild west of the rapidly expanding towns in Guangdong. Prices are reasonable, maybe six to ten thousand renminbi per square metre, with yields around five or six percent.

On the whole the city has a good feel. Although it might be thought that the place has lost influence since Chongqing became an independent municipality, and therefore independent of the smaller provincial capital, it is the case that some of the poorest parts of Sichuan became Chongqing's problem after 1997.

There is a lot of high-tech industry in the town, as well as a lot of food-based industries, especially the those based on the famous Sichuan spices. There is inward investment from HK and Singapore, which, I am sure, will result in steady economic growth.

Somehow however, I feel that the city is just not exciting enough for me to want to invest there. I also felt somewhat negative about the raw capitalist feel of Guangzhou, which is the opposite of quiet Chengdu, but this is my emotional response to the city.

My guide to the city, Yan, was so unremittingly enthusiastic about her adopted home that I feel very guilty writing this entry. Really, Yan, it's nothing personal. I would much prefer to live in Chengdu than in Chongqing; it's just that my investment preferences are the reverse of my personal ones.

Chongqing is a pretty major economic player in China. With 32 million people and bags of mineral wealth, as well as two navigable rivers, a big airport and a lot of money and encouragement from central government it has a lot going for it. It is China's fourth independent-of-provincial-capital municipality after Beijing, Shanghai, and Tianjin.

The Three Gorges dam has improved navigability of the Yangtze as far as Chongqing. The city also has the Jialing river, which has a confluence with the Yangtze at Chongqing. This page shows that Chongqing welcomes foreign investment in more-or-less any industry you could think of!

My impressions from my all-too-brief visit to the city were that it is a thriving hub, with bags of investment in property and infrastructure and cheap property, but reasonable yields. There is certainly a huge supply of new-build offices near the CBD, and offices are very cheap there - maybe as low as 5K RMB/ sq m. LiChao suggested that yields on retail could be as high as 7% with their magic in selecting an appropriate location.

My own feelings are that this is a major conurbation with prices comparable with Zhuhai, and well worth further investigation.

These elusive firms exist - NAI Global, LiChao (website entirely in Chinese), Chinese Estates Holdings Ltd., E-house China (Holdings) Ltd., CB Richard Ellis.

I am looking to use a firm to handle the negotiation with vendors, to sort out paperwork, and generally to smooth my passage to owning more commercial China real estate. Li Chao, the only firm we have spoken to charges 1% of the transaction price as fees for doing local market research, negotiating with the vendor, advising on tenant demand, expected yields, capital grown expectations etc. etc.

If you have any experience of using one of these kinds of firms in China please advise.

I have split out the China content from the Herts Lettings website and loaded it into a new website, mingwei.co.uk. This now is my China property investment website.

It uses, Drupal, just like Herts Lettings. I loaded the SEO Checklist module, and the modules that it recommends, such as google sitemaps. It has the Printer-friendly pages module, as well as TinyMCE.

The last of these - a javascript html editor - is pretty cool, although it has strange effects on some linebreak filters.

The main improvement that I've made is to put in some proper navigation. What I never understood is that the Navigation menu is special - there is a block that can be used to display it in a way that cannot be replicated by any other menu. (There is no way to create a block that contains a specific named menu, that I have found).

Also there is a difference between a pure menu item and a page or story that is a leaf node. These display differently in navigation areas.

I still don't fully understand the operation of Primary and Secondary Links. The other odd thing is that a lot of administration links disappear when one logs out.

I am still learning about Drupal. I came very close to spending a lot of money on a web designer. I very much hope that Epsilis do the right thing when they start work on the Herts Lettings website.

I never get feedback. Nobody comments, emails, telephones, trackbacks.

However, of the few people I know in RL who ever use the internet a surprisingly high number of them admit to reading my blog, at least from time to time. I assume that of those, at least a sizable minority will have at least a couple of sites where they can create a link. To this majority I address this heartfelt plea: link to mingwei.co.uk. I have now produced a first draft of the site and am desperate to get some traffic and page rank. Just visit, take a look, then create a link. I am more than happy to give you a link more-or-less anywhere on the site you'd like it. I have virtually no outbound links now and am wary of participating in any link exchange programmes that Google might view disapprovingly. But a few well-chosen link exchanges can surely do neither party to the exchange anything but good.

And don't forget that link: this means you!.

If the stockmarket is about to crash, can real estate be far behind?.. perhaps. This post contains links to a number of articles are bearish on Chinese equities.

I was guided to this blog by the Christine Lu who sent me an email in response to my facebook message... I wonder if I can become her friend. China Business Network is her publication.

Christine comments in her email to me:

One sector that is really hot right now and earmarked for a lot of growth is sustainable development projects. In particular, sustainable development or "green" residential and commercial projects in regards to real estate.

You can hear her interview with Aaron Newman here.
Certainly I believe working with China to improve environmental standards in their urban areas is a very promising avenue.

I am going to China today! My plans are:

1. to visit a few more areas of Zhuhai City to see for myself the locations and developments that have been researched by my colleague as promising investments. Sen Yuan Yen is an area I am particularly looking forward to seeing as it is the site of a major new development of leisure and shopping, including a new Carrefour department store,
2. to make contact with freight forwarders, agents and manufacturers in Zhuhai, and possibly Shenzhen, with a view to importing some high margin products into the UK. I have toner cartridges in mind, but I am going to see some factories before making a decision,
3. to catch up with some old contacts in the area, and in HK,
4. to finalise the incorporation of my Wholly Owned Foreign Enterprise (WOFE). I am quite excited about this as it is will be licensed to carry out import and export activities for a wide range of products,
5. to talk to everyone who will listen to me about property financing,
6. to find a developer who is interested in working with me to promote his development to UK buyers. This is proving to be problematic, so if you have any contacts in ZH please tell me NOW!!

I have boosted my Adwords campaign by running it through the optimiser process. Please give it a try - put some keywords that you think that a person interested in investing in China property would search for and see if you get a link to Mingwei.co.uk. If you spot some keyword combination that is relevant and has very few sponsored links, please tell me as this should provide a cheap marketing avenue!

I haven't blogged here for a good while about China. I continue to take an interest, but the number of transactions I'm involved in has definitely gone down. I have invested in a few HK-listed developers and REITs, as a hedge against getting left too far behind in the direct investment market. The general view is that the market in Zhuhai is stalled, with prices static, and rental demand weak for all but the most high-end places. In my view this is just what the market needs to allow everyone to have time to think about whether they want to be in the market, and what part of the market (location, size, type, commercial/residential) they want to be in. I have a suspicion that high quality office space in good locations (Gong Bei, Jida) will give the best total return over the next few years.

I am in negotiation to rent a new office in Gong Bei. This is actually a share of an office owned by Chris Wong, (see links to his ventures at the end). This office will allow me finally to complete the setting up of my WFOE. The whole cost of this has been low, but it has run into a few problems, not least getting a physical bank reference over to Zhuhai (sending docs to China is still a problem I haven't solved: I understand the key is to send via HK) and then using my small office as a registered office for the company.

Chris is a mine of information about buying property in ZH. He obviously must have some good contacts in the real estate industry - he is about to launch a property portal! More importantly he owns a number of apartments in various locations across HK, Macau, Zhuhai, as a foreigner: since Chris is a Canadian, not a PRC or HK citizen.

Being qualified to borrow is not as hard as you might think. All that is required is a bit of Chinese lateral thinking. If you would like to know how it is done, the contact me via the Ming Wei Properties contact page.

I am trying to plan my trip next month.

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Some of you read this but fail to monitor mingwei.co.uk, religiously or not. Some of you are known not to have signed up for the Ming Wei Newsletter. You can't avoid it that easily: here it is, reproduced in all its goriness:

Introduction

You are receiving this newsletter either because you used to be subscribed to the Herts Lettings/Ming Wei 'China list' on Constant Contact, or because you have registered an account on the Ming Wei website. If you don't think you should be receiving this then please use the unsubscribe link at the bottom or email me directly at steve@mingwei.co.uk to ask to be removed. This is not spam. Please do not report it as such and get me blacklisted! This newsletter must have made its way through your spam filter which, from my point of view, is definitely a good thing. If you have any interest in reading subsequent ones then it might be worth adding the sender to your address book, as this will reduce the chance future mailings being misclassified as spam.

The state of the Zhuhai Real Estate Market

Property prices in China generally have softened considerably in the last few months. Even China's large internal economy is not immune from the global credit crunch. Property prices in central locations in Zhuhai have stagnated over the last three or four months, and transaction volumes have plummeted. A number of estate agencies have gone out of business, and others have reduced the size of their branch network. Rental demand has weakened too, although there are still pockets of strong demand in Xiawan, especially near the New Bar Street alongside the Qianshan river.

The rail link to Guangzhou is now well underway, and should becompleted by next year. This will, for the first time, permit people tolive in Zhuhai, with its clean air, good schools and attractive seasideambience while working in Guangzhou, with its higher concentration ofmulti-national companies and executive jobs. This should have a majorimpact on demand for upmarket accommodation in the city and should helpto offset the general slowing down of the economy.

The Hong Kong and Macau property market is surging ahead, fuelled bycheap money provided by Ben Bernanke. Whereas RMB interest rates arelikely to rise to combat inflation the HK equivalent is tied to thedollar. This makes for an interesting property market in the twomarkets which have such a big influence on the Zhuhai market.

Progress on allowing foreigners to borrow to finance property purchase

I have continued to investigate ways to allow foreigners to obtain bank financing for purchases. I have made a small breakthrough, but this will be economic only for the larger investor. It requires that the investor set up a WFOE in China, so it is only for the more active and committed investor. If you are interested I can send you details. This should be available for any sort of real estate investment - commercial or residential.

Investing pension savings in China real estate

It is possible for those of you with SIPPs or SSASes to invest in China. I have been speaking to a financial advisor who knows of a way to comply with the rules on investment in real estate but still invest in overseas property. This involves setting up a investment vehicle, with around ten investors through which the investment can be made. Please call me to find out more about this opportunity.

Converting currency problems (in principle) solved

I have now solved, in principle, the problem of remitting foreign currency into China for the purpose of purchasing real estate. I am now in contact with some English-speaking lawyers who have a good knowledge of real estate law in the mainland. The whole process of property purchase in Zhuhai should now be straightforward. I have spoken to a number of experts on remitting investment profits out of China and they all tell me that there are really no problems doing this, as long as the audit trail for the original investment is available.

Auctions coming up in Zhuhai

There are a lot of auctions for properties coming up in Jida, along Jiuzhou Dadao, which is a major thoroughfare. These can be somewhat difficult for foreigners because of fairly onerous rules about registering to bid and depositing funds up front. However some bargains can be had, especially in a slow market, such as the one that obtains in Zhuhai now.

Thinking of buying to refurbish?

I have a number of contacts in the building trade, who can refurbish tired apartments in Zhuhai. Some of these can be rather expensive, but it is undoubtedly the case that a very well decorated 'western style' apartment commands a premium rent and - as long as it is in a central location - can be rented to one of the increasing numbers of foreigners who are coming to work in Zhuhai. There are often good returns to be made by buying properties in a good location but in a poor condition. Many buyers need to rent or occupy quickly because of cash flow constraints, and so are not interested in such properties. We can take the risk out of getting the redecoration done on time and on budget. If you buy new-build or off plan you will also find that you need to have a good interior decorator/second fix building team as most new-builds in China are just concrete shells with basic services (water, sewerage, electricity, gas) terminated in one corner.

Guide and interpreter facilities now available in Zhuhai

I am now able to arrange an English-speaking guide, with car, to showinvestors around Zhuhai. I have an office in Gong Bei, fully equippedwith internet and English-speaking staff, who can arrange accommodationand generally look after you on your visit to Zhuhai to inspectproperty. This is in partnership with a tour company that operates in Zhuhai, Hong Kong and Macau. They would be delighted to arrange a trip to local tourist attractions!

Amazingly I have been spontaneously contacted by a couple of journalists. They wanted to interview me about investing in China.

I know a bit about this. I have spent a large part of the last year reading up about the subject, and talking to people both in China and in the UK about the subject. But as far as the other things I know about, I'm a complete novice. Compared to my (earlier) understanding about statistical mechanics, or derivatives valuation, or C++ programming, or even cooking, I know next to nothing about property investment in China.

I guess it's all relative, and that the reason that people ask me about China is that relative to others in the UK I know quite a lot. Still, I feel a complete fraud, especially when I'm asked to opine on where China ranks as an investment destination globally. What do I know I know how China compares with Czech Republic, Slovenia, Lithuania, Canada, Germany, Burma. Anyway, I'm due to appear on Anton Stoutjesdijk's website.

Anyway, I'll put up the links on the website. I'll almost certainly mention it in my Ming Wei newsletter, which I am producing fairly frequently now. If you haven't already done so, I urge you to make your way without delay to www.mingwei.co.uk and enter your email address on the panel on the left (just under the search box).

I have been very erratic in posting entries recently. I have been on holiday. Things are unlikely to improve when I am in China as I have a very full schedule of meetings.

I have been very busy recently setting up China Direct Partners UK. This venture arose out of a chance meeting with Gary Dickinson whom I met when I was last in China.

The company is based around the direct global procurement business model. This involves leveraging the power of the internet and modern telecommunications, the increasing competitiveness of containerised sea freight, and the huge competitive advantage of China in large-scale manufacturing. The target sector is the building industry, the structure of which, in the UK, has remained apparantly unchanged in the face of the globalisation.

I have had great fun speaking to managers in main contractors. In many cases they say that they source entirely from the UK, which seems highly unlikely, although maybe they choose not too look too closely at where their distributors get their supplies from. I am still learning about how the industry works. I still don't know exactly what determines the decision of a main contractor to go 'management only', with all labour and materials outsourced. I would have thought that that would automatically shift too much power to the supplier in terms of preserving margins. Certainly distrubutors do make large gross margins - around 33% as far as I can tell from studying the published accounts of firms like Wolseley, although most of that saving is swallowed up through the costs which arise from managing the sourcing from a high-labour-cost economy like the UK.

I apologise for the lack of general blog entries recently. I have just been too busy.

If I know you, and you have any background in the construction sector, I would be very interested indeed in buying you a meal or a drink in exchange for picking your brains about how the sector operates.

I have recently come back from a three-week trip to China. I am now busy and don't really have time to describe it in detail.

As always I learned a lot from visiting this huge country.

Beijing

I went here in the thick of the Olympic activity. Really I wish I'd never gone. The Olympics made the city amazingly expensive and difficult to get around. The hotels were 60% empty but, no doubt, had record profits. The visitors to the Olympics, as far as I could see, comprised politicians and bureaucrats, predominantly, as far as I could see.

Old Beijing really has been destroyed by the communists. There is really very little of its history left, apart from a few temples and palaces. There didn't seem to any decent museums. Maybe I just needed a better guide.

Xi'an

Xi'an was our favourite place in China. The historical sites around it are fantastic. The atmosphere needs to be cleaned up. The Olympics made their presence