NOW IS THE TIME TO INVEST IN HENGQIN, BUT MIND THE PITFALLS (PART II)
投資橫琴現時機 留意陷阱少不了(下)
In last month's column, I talked about the rapid development and emerging investment opportunities in Hengqin, thanks to the enhanced infrastructure network of the Greater Bay Area. However, Hengqin is a mainland city with regulations, culture and customs different from those of Hong Kong, which means that investors need to look out for certain pitfalls and stay alert and informed when making investment decisions.
First of all, we need to take policy risks into consideration. To regulate the housing market, the mainland government has introduced a series of policies such as purchase restrictions, mortgage restrictions, sales restrictions and price limits. Purchase restrictions, as the name suggests, regulate who can make home purchases, and the specific rules vary depending on where you are. For example, Hong Kong and Macao citizens can only buy homes in Zhuhai and Hengqin if they have worked in these cities for at least five years, and can provide social security or tax proof for five consecutive years. To cater to non-local buyers, some developers have been selling units in “apartment buildings” that are technically commercial real estate according to their premise permits and thus not regulated by purchase restrictions. However, compared to residential housing, whose land-use time limit is 70 years, these commercials properties have a much shorter land lease of 40 years, and there hasn't been a clear and definitive answer as to what happens when the lease is up. In addition, whether a property is fit for residential use depends on its location, facilities and management, and buyers need to do careful research on such “apartments” before buying them.
Sales restrictions, on the other hand, dictate that home owners need to obtain a property ownership certificate before reselling their homes. In Zhuhai, this means a sale can only be made at least three years after the owner purchases the property. As for mortgages, the loanto-value ratio for normal housing is up to 70%, while the ratio for special residential categories is capped at 50%. In addition, governments also use price limits to force developers to sell homes at prices slightly under market rates. To circumvent the limit, developers sell their ready-to-use properties in two separate contracts: one for the bare shell, and the other for the finished interiors, such as lighting and air conditioning. Only the bare shell contract is used when calculating the mortgage, and buyers can't get loans for the interiors contract.
Property ownership is another area that buyers should pay close attention to. In mainland China, property ownership transitions don't always have to be handled by legal professionals. Normal property sales contacts can usually be registered on government websites, and buyers can check them online. Recently, some mainland developers have been selling parking spots to non-home owners of the developments, who, unlike home owners, would only be issued a usage permit for the parking spaces, and not an ownership certificate. This is a very risky move as the buyer's rights and benefits are not guaranteed, so I highly recommend buyers purchase real estate that comes with ownership certificates.
Last but not least, the value fluctuation of currencies is a considerable risk factor in buying overseas properties. It should go without saying that the ongoing decline of RMB is something buyers should keep an eye on. Otherwise, it's not impossible for the exchange rate to turn your savings and profits into losses.