Buy & Hold 7 Steps to a Real Estate Fortune- New 2007 Edition

Foreign Ownership Of Real Estate In China/China’s New Forex Rules

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After moving to the seaside resort in , three years later Alice decided to leave her career to focus on becoming a landlady. The former stockbroker owned a large house and had put up international students for a few years, so she knew there was a demand for student housing. She took out some equity from her house and bought her first buy-to-let property.

Within six months, the property had soared in value, so she drew down 15 per cent of the value and bought another. It snowballed from there. In the property market crash of the financial crisis in , she bought seven more. That was her most nail-biting moment, as she feared she might end up in negative equity, with a load of homes worth less than the money she had borrowed.

The price of a property moves up and down, but at least you still always have a building. She has learned many lessons. First-year students are the ones who tend to do the most damage, so she tries to rent to second and third years because they have lived away from home before and know how to run a house.

Students also book in advance and have guarantors — normally a parent — who will pay the rent if things go wrong.

Buy & Hold: 7 Steps to a Real Estate Fortune

They involve more work, though, largely because they expect rooms to be furnished. You take a chance. They are higher maintenance because the properties are furnished, so you have to keep that maintained. But another benefit is that you need only one communal room, so you can turn other downstairs reception rooms into extra bedrooms — and that boosts your rental yield.

But you get busy periods with any business, and we just get everyone we can on board to help with all the cleaning and the admin, and we get it done. Can you rely on bricks and mortar for your retirement? But while it is possible, working as a landlord is just that: There are a number of things you need to bear in mind about buying property as a pension.

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If you are relying on it as an income, then you need to remember that there is no absolute guarantee of getting one with property. Your flat could remain unlet for a long period, or you may be faced with a huge bill and that will eat into your income.

What most people want in retirement is a secure income, and you can only receive that from a pension annuity or a final-salary scheme. However, as a way of supplementing this income, it could prove a boost. An alternative is to build up a portfolio of homes and sell them when you need money. There are two considerations here.

First, you are exposed to the foibles of the housing market. Second, you may not be able to sell in a hurry, leaving you stretched for cash and paying a mortgage while the property is for sale. You also need to remember that the mortgage will need paying off.

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However, with new pension freedoms around the corner, it could well be that millions more retirees look to property — an asset that has done extremely well for them over the years — to boost their retirement funds. Bristol is a popular place for young families. The city has plenty of parks and open spaces and offers easy access to the M5, with Devon and Cornwall on its doorstep. The Cabot Circus shopping centre houses a Harvey Nichols, while Temple Quarter, the new business and residential district around Temple Meads station, is taking shape.

With two universities in the city, there are many graduates who stay put and carve a career in Bristol. Clifton, the oldest part of the city, is still much in demand, but property can be expensive. It is best known for its high-end boutiques, fashionable cafes and restaurants. Redland is a more affordable option for both investors and renters. Both districts are near Durdham Downs, which is popular for family walks. Redland Road, Bristol BS6. Occupying the rear section of this substantial Victorian building near Durdham Downs, this two-bedroom, first-floor maisonette, has an impressive 21ft x 17ft sitting room.

A two-bedroom apartment in a Grade II-listed townhouse. There is an open fire in the living room, with bookshelf storage and large sash windows. Outside it has a private courtyard. The views expressed in the contents above are those of our users and do not necessarily reflect the views of MailOnline. Most worrying legacy of Lloyds takeover of HBOS is bank's domination of both the mortgage and savings market It's not just business rates and online rivals Private equity has trashed our high streets Jaguar Land Rover is cutting production at a key plant to just three days a week as it adjusts to falling demand Former chairman and chief executive of Lloyds face grilling by investigators over claims they covered up massive fraud Hornby shares surge 24pc after it signs a deal with Warner Bros Pretty penny!

High-tech companies are turbo charging US share prices - otherwise they would be in the doldrums too What a rip-off! How we built a rental home empire: You may think 'why stop at one property? Share this article Share. Get fee-free advice and check the best deals. These foreign individuals are limited to one residence.

There are somewhat less restrictive rules for residents of Hong Kong and Taiwan.

Following on the Opinion, the relevant authorities issued detailed rules on foreign exchange issues related to the foreign individual purchase and sale of real estate. The Forex Notice recognizes that most individual purchasers of real estate in China will be using foreign exchange form their home country for the purchase. These rules require proof of the real estate purchase in China, proof of identity, and proof of residence for at least one year. No cash can be withdrawn. The Forex Notice also provides rules for converting Renminbi RMB proceeds from a real estate sale by foreign individuals.

The Forex Notice provides that RMB proceeds can be converted to foreign exchange if the foreign individual provides an application, a copy of the sales agreement, and proof of payment of all taxes related to the property and the sale. Without proof of payment of taxes, conversion of foreign exchange will not be permitted. One of the tax officers with whom I discussed this told me that taxes are not a major issue in foreign exchange conversion since the sale itself would not be approved absent proof of payment of taxes.

I am aware of many foreign residents in China who are going to be facing a very unpleasant reality when they try to sell their China properties. This is another example of China starting to take a very serious approach to tax compliance. I am also aware of a number of foreign residents who are violating Chinese law by buying more than one property. They tell me they feel safe in doing so because the Chinese government does not effectively track foreign real estate ownership.

These people are taking large and unnecessary risks.

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The risk is unnecessary because all they need do to buy multiple properties legally is to form a WFOE and make the purchases through it. I view the risks as huge because I fully expect China to have effective tracking mechanisms in place before most of these people are able to sell. The new system works as follows:.

Accordingly, the new Forex system established this month has no impact on the purchase and sale of real estate in China by foreign individuals. Despite this, many people who contact me incorrectly believe the new rules imposed an absolute limit on foreign exchange conversion or prohibit foreign exchange conversions for buying real estate. The new rules are actually a liberalization of the old rules, not an attempt to impose new restrictions. For those wishing to learn more on China real estate, mark May 3 and 4 on your calendar as both my co-blogger Dan Harris and I will be speaking in San Francisco on those days at a seminar on China real estate investments and doing business in China overall.

Needless to say, you can expect many of us at that seminar to be talking about foreign ownership of real estate in China. Li — After seeing the two sentences you quoted, I flipped them around in the article, for clarity.

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Thank you for this — it clarifies a lot of questions. How are you larger clients reacting though? With many of the big guys structuring offshore anyway, what laws could come out to slow down offshore share transfers? While the opinion expressed herein may reflect the intent of the government, how many of you have actually completed a transaction on residential properties in China in the last 12 months? How many have completed multiple transactions, which would provide a much better understanding of the actual effect of the new regulations? I believe that you are mistaken in thinking that the Chinese government will enact tax policy that creates the impression of unfairness, scares away foreign capital or has the effect of penalizing investors who purchased multiple properties prior to this regulation being drafted.

The risk many foreign observers fear is nothing more than an inexperienced view of the marketplace as viewed through western eyes. I personally know a number of investors who continue to convert and transfer out capital and capital gains on real estate deals with no problems. They sell the property, pay the tax and Bank of China transfers the funds. It happens every day and continues to this day. Everyone who lives there and does business there knows that these policies have great latitude and are interpreted differently in each city, based on the local conditions.

In the market I live and work in, the effect has been nothing like what is described or predicted here. Just ask a taxi driver. And yes, the policy makers are indeed ignoring local real estate barons who arbitrarily set real estate prices based on whims and competition with each other. Shaun — The Detailed Rules provide clear and explicit instructions on the documentation required for virtually any type of transaction. In general, what is required is some written evidence such as a contract, invoice or receipt. For example, for lease payments, a registered copy of the lease and a formal receipt are required.

This identifies the problem: The reason is that the landlord is evading tax on his rental income. In such cases, the bank will refuse to allow the currency conversion. It is the same for other types of transactions. This is exactly what Beijing intended. All Roads Lead to China — The people who were really hurt by the new rule were the real estate developers who were focusing on luxury condominiums and luxury second homes.

This group was almost exclusively focused on foreign buyers who purchased almost on impulse. The requirement that such buyers must now form a WFOE before they buy pretty much precludes the impulse buy. To me it is odd that these developers seem not to have figured out that all they need to do is set up a program so that their buyers create a WFOE as part of the process.

Instead, they have reacted with panic and many projects are in serious trouble. On the buy side, no one has really been hurt because it is a relatively straightforward process to purchase real estate in China through a WFOE. The issue seems to be ignorance of the required procedure. It is true that for larger scale purchases, the big players have the advantage since they are able to form a WFOE that can pool funds and then purchase over time from the pool. The smaller players do not seem too comfortable with that approach.

China is considering a number of rules that would restrict the sale of stock in WFOEs held overseas. However, none of these rules are directed at sales of offshore companies that act as the shareholder of a WFOE. The structure you describe is a good way to gain many of the benefits of a REIT for holding Chinese real estate. The main problem at this time is that WFOEs are NOT pass through entities, so the tax benefits of holding real estate do not pass through to the offshore shareholder.

Donnington — It appears you have misunderstood our post. In terms of real estate transactions since the new rules were imposed, we and our clients have been involved in hundreds. As the post states, the new forex rules do nothing whatsoever to change or vary the rule on foreign ownership.

I therefore completely agree that the Chinese government has no intention of blindsiding foreigners with new and arbitrary rules. However, many existing tax rules in China have been loosely enforced in the past. China now has a clear policy to force local tax authorities to follow the law as it already exists. Many foreign businesses are finding that the tax authorities are showing up with bills for many years of unpaid taxes. This process is expected to increase over the next several years.

The goal of the Chinese government is to reduce and eliminate local variation in the enforcement of tax and other regulations, particularly as they apply to foreign companies and individuals operating in China. I can tell you from the urgent e-mails and calls we are receiving that this is happening. In terms of taxation, the issue is this: This is NOT true. Owners who have not paid that tax, or any other applicable tax there are many possibilities , will NOT be permitted to sell their property. This will be a brutal surprise. It will be an even more brutal surprise when they see the size of the bill for back taxes, inflated by interest and penalties.

I have seen this too with my own eyes. Many foreign individuals in China have chosen to ignore the rules and continue to purchase multiple properties in China in open violation of the new rules. They are relying on the fact that China does not have a good system of tracking real estate ownership on a national level. Our concern is that, later, when the owner decides to sell the property, China will have improved the system to the point where such tracking is possible.

If this happens, the sale will be prohibited and various penalties will be imposed. Since creating a WFOE to own such properties is a relatively simple process, these individuals usually are taking unnecessary risks. In terms of speaking with tax officials from other regions outside of Shanghai, 1 these rules are national rules, there is no room for local interpretation, and 2 we have done these transactions in Beijing, Tianjin, Dalian, Qingdao, Wuxi, Suzhou, Shanghai, Hangzhou, Xiamen, Chengdu, Guangzhou and Shenzhen.

Seeing as how this covers the bulk of the cities in which foreigners buy property, I am confident this is a wide enough sample. On the question of no one really being concerned, I am speaking from experience. I know from personal experience that many persons were extremely concerned about the impact of the new forex rules and I know from personal experience that many persons have misinterpreted the rules on foreign ownership and I know from personal experience concerning the failure to pay tax and the purchase of multiple properties in open violation of the rules.

Either we are living in two separate worlds or you are guilty of wild extrapolation.

Li — Taiwanese and HK citizens need not live in China for a year before they can buy a single place in China in which to live. Transaction went quite smoothly. If i decide to rent out a unit, how would the tax authorities know about it? Dan, Appreciate the thoughts. At this time, the people we work with could care less about any future rules about changing shares of WFOEs on the mainland. I am sure your clients will have the same reaction as well. With regard to the impact on developers, I was sitting with one of the largest SW developers who had recently finished a master plan for a villa development.

At first glance, it was worst case as they just changed the rules and he had just spent a fortune on the planning. I expect many of the new regulations will only be enforced in the major markets where there has been a dramatic rise, and even then there are workarounds. Foreigners buying multiple apartments or even holding multiple apartments will only have problems if they are raising funds onshore. If they want to pay cash, or have raised their money offshore… mei wenti. Especially if it is in a city that is in need of the cash.. Big Flush great name — Thanks for checking in.

This is the problem, but I will say you are smart enough to recognize it. That is a very good question about how the tax authorities would know about your renting out your flat. The answer is they might and they might not. A WFOE is a wholly foreign owned entity. You can find out more about them here:. All Roads — I definitely agree things will be looser in the hinterland, but I also expect things will toughen up in places like that eventually as well. There will always be ways to get money out of China illegally and I have no doubt that you know some of them, but to do that right takes money and it has its own separate risks.

Setting up a WFOE is so relatively painless, why not just do it? Are you saying I am shady?

The reason is simple. We just oppose how it is marketed as an all-weather, all-condition investment solution when the research supports it as a special case investment strategy that should only be used when conditions are appropriate. Learn the facts so that you can decide for yourself. All of the major markets are in extreme overvaluation territory creating extraordinary risk of loss.

Contrary To Popular Belief, Buy And Hold Isn't A One-Size-Fits-All Investment Strategy.

But this has been true for years so why the warning now? Discover the 4 symptoms that separate bubbles that burst from simple overvaluation, and find out how current market conditions stack up. Are we on the precipice of a collapse, or are we at the beginning of a sudden, final price acceleration? This complete analysis will give you all the facts and show you how to manage your risk of loss for the inevitable fall around the corner…. However, the cheapest investment advice can be the most expensive.

Discover why personal finance should be simplified, but investing should not be. This knowledge will help you sort good investment advice from bad and make you a better investor…. I need your help please!! I want you to rant and share your frustrations. The reality is I live in a very different investment world than most people.

Get your voice heard because I promise to read every single comment several times and take notes. Please just answer one of the following…. What does the bond market today have in common with the stock market in and the real estate market in ?

They were all ridiculous bubbles that ended very badly for investors.

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