Central government policies introduced in July have temporarily cooled foreign real estate investment purchases, but local buyers are picking up the slack and driving demand for beachfront properties in Qingdao and Hainan Island. These holiday homes could become China’s equivalents of seaside getaways like Florida and Southern California.
In early December, China’s central bank warned of a possible real estate bubble for the first time. As a result, the bank ordered a US$20 billion bond purchase, the fourth this year, to shrink the pool of money available for lending. Additionally, the central government announced a number of new policies in July designed to cool real estate buying by foreigners.
Jeff Weidenborner, general manager of Sienna Commercial, a group of Qingdao-based commercial real estate consultants, says such laws only drive more local buyers to purchase beachfront property in Qingdao and other Chinese seaside cities.
Since Qingdao’s status as host of the 2008 Olympics sailing events was announced, real estate prices in this coastal city in eastern China’s Shandong province, have fluctuated, even as the number of real estate companies in the region has sky-rocketed.
Andrew Yu, general manager of Andrew’s Consultancy, said seaside Chinese cities have become both popular and sound investments for many of his clients, who are newly wealthy Chinese. Qingdao, for example, is not only touted as China’s cleanest city, but is also conveniently situated between Shanghai and Beijing.
“As foreign investment begins to wane due to government regulations, we’ll see more wealthy Chinese looking to buy beachfront property for vacations and rental, in the next 10 to 20 years,” Yu said. “The demand is definitely going up and developers have been riding the wave.”
Most of Qingdao’s beachfront real estate are modern villas, often with Western-style interiors. But many Qingdao beachfront properties sit vacant, left to appreciate by hopeful owners.Indeed, Weidenborner says many beachfront properties have been purchased by buyers who hope to capitalize on the Olympics-driven appreciation of mainland property.
Besides Qingdao, Hainan Island has seen growing popularity in real estate sales, despite a property bust in the late 1990s. More than 60% of its real estate sales comprise residential properties, thanks to price controls, tax-free mortgages and other incentives for buyers. The resort-oriented island’s attractive housing prices along with a spacious per-capita floor occupancy of 14.8 square meters, brings in buyers looking for a holiday escape without visa hassles.
In most developed real estate markets, the average cap rate is 10%, whereas in Qingdao and other cities in China, no annual property tax is applied and other taxes are only levied when properties change hands. Still, the July policies make buying an expensive option for foreign investors.
Weidenborner himself has considered buying property, but has opted to lease for the time being. He says current tax laws and the sharp rise in real estate prices make beachfront property cheaper to rent than buy. His 150 square-meter beachfront home in Qingdao, next to the newly built Olympic sailing complex, only costs US$639 a month.
Weidenborner also noted that investing in smaller real estate markets like Qingdao can be quite different from buying in larger markets. Tax dodging, where buyers and sellers agree not to provide a fapiao (receipt) so no taxes have to be reported, is not uncommon in Qingdao.
“We’ve never seen this in large cities like Beijing or Shanghai, because they are better regulated,” Weidenborner said.
Even as China’s state banks, the country’s largest real estate lenders, are on “high alert” for a real estate bubble, foreign buyers like Weidenborner are waiting to purchase beachside property – just as soon as policies become favorable once again.