Negotiating the changeable property market in China

The property market in China is complex, so expats need to know how to negotiate it. Shelley Warner, China specialist at relocation network, Reloc8 offers some useful advice.

Donaldytong via Wikimedia Commons

The property market in China is complex, so expats need to know how to negotiate it. Shelley Warner, China specialist at relocation network, Reloc8 offers some useful advice.Beijing:There have been no obvious changes in the Beijing expat rental market and rental prices have remained unchanged in most apartments and villas in the past 6&#x;12 months.There was a decrease in the number of expatriates in 2013, and there has been increasing demand for housing from local Chinese because: 1) multinational companies are reducing their corporate budgets for housing allowance and/or replacing expatriates with local staff; and 2) air quality is also a factor in the decision of an expatriate family to move or not to move to Beijing.Shanghai:Shanghai is now becoming a regional hub for Asia and continues to attract both multinational companies and individual expatriates, fuelling demand for high-end property.On the other hand, the Shanghai government has implemented several cooling measures to limit high-end property rental market supply (see below for details).An imbalance in supply and demand has led to an increase in rent across the city over the past years, particularly in the highest demand areas such as well-managed housing compounds, mature expat community areas, property with close proximity to international schools and property within a reasonable travel distance to downtown.This high demand and limited supply also means expats renting in Shanghai have less negotiating power than before. We foresee this trend continuing into the near future.The market in the Waigaoqiao area is expected to enter a higher growth period due to the positive impact of the Shanghai Pilot Free Trade Zone.Chongqing:Over the past year, the housing demand has been increasing, but the supply has also been increasing. Even though the selling price of houses has increased slightly, the supply is still slightly higher than the demand and rent has remained static.&#x;Availability (and supply) of expat standard housingBeijing:Both for apartment compounds and in general, 2&#x;3 bedroom expat-standard housing is more available, but the supply of small (1&#x;bedroom) units or bigger (4&#x;5-bedroom) units is limited.As for stand-alone houses, 3&#x;4 bedrooms is the standard layout and 5-bedroom houses are relatively hard to find. The supply and demand trends tend to be balanced, but in a few particular areas popular with expats, such as the CBD (Central Business District), the Chaoyang Park area and the Sanlitun area, the demand placed on a number of high-quality compounds can be higher than they can supply.The demand for leased serviced apartments is showing signs of stagnating, due to both cost-saving and decreasing numbers of expatriates from multi-national companies. The average occupancy rate has reduced to 80 per cent from a 90&#x;95 per cent average in the previous years.Shanghai:Shanghai is experiencing a reduction in supply. Property tax, ownership limits and huge amounts of required down-payment are making property investment less attractive to investors. Investors are selling properties and taking properties off the rental market, thereby reducing rental supply.Potential investors have difficulty obtaining mortgages and are discouraged from purchasing. Existing investors are disinclined to expand their portfolios and there are less developments coming onto the market.Some investors are feeling pressure to sell, and some have decided to live in rented properties. Their logic is that they also keep an investment property and bide their time to see how government policy evolves.Chongqing:The availability of expat-standard housing varies in different districts in Chongqing: in the New North Zone, 4-bedroom apartments/townhouses/villas are more available; in the Yubei District, 3-bedroom apartments/townhouses are more available; in the Jiangbei District, 2&#x;3 bedroom apartments are more available; in Yuzhong District, 1&#x;2 bedroom apartments are more available; in other areas like the Shapingba and Nan&#x;an districts where expat-standard housing is very rare, 2&#x;3 bedroom apartments are more available.&#x;Policies or regulations that affect rental or purchase practicesBeijing:The Beijing government has rolled out trammels by disqualifying non-Beijing residents who do not hold five years of social insurance payment certificates, foreigners without year-long work/live in Beijing permits, and Beijing families with two or more houses from the new residential purchase.So many potential purchase activities were affected by the purchase restriction policy, and those affected have to rent instead, or purchase prior qualification. This has notably increased the rental price of the local standard rental market.Shanghai: Following the effects of the Shanghai government&#x;s cooling measures on the sales market, purchasing price in Shanghai increased by over 20 per cent in 2013 in comparison to 2012. Rental prices are also continuing to climb.It is difficult to apply for mortgages. There has been an increase in the minimum down payment for second-home buyers from 60 per cent to at least 70 per cent of the property's transaction value.There has been a rise in the number of payment years of social security fees or taxes for families that don't hold Shanghai's permanent residency permit, or Hukou, from at least one year to two years before they can buy homes.A Shanghai Hukou holder can only hold two properties per family. Those who don&#x;t hold a Shanghai Hukou can only purchase one property in Shanghai.The future supply of luxury property has been constrained by government restrictions on developers. Increasing property tax raises the cost of holding multiple properties, causing investors to look for opportunities to sell their properties.Chongqing:Due to the policy restricting housing purchase, the supply and demand in the housing market has stabilized accordingly, and purchase/rental prices have remained stable.For foreigners who wish to purchase houses in Chongqing, they must have worked/lived in Chongqing for at least one year prior, and purchase at full payment.&#x;For further advice please go to Reloc8 at: reloca8asia.comThe Summer 2014 issue of Re:locate magazine will feature further analysis of the international lettings market with particular reference to the UK and Asia Pacific region. Click here to register for your free digital copy.&#x;