Author Topic: Buying an apartment in China  (Read 556 times)

makane

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Buying an apartment in China
« on: October 21, 2018, 11:22:08 AM »
Hi all,

I've lived in this 10+ million Chinese metropolis for three years renting, make a decent living and stow away extra money in index funds.
I'm an expat, fluent in Chinese and need to stay in this city for at least another 2.5 years to complete my assignment here.

Me and my girlfriend seem to have found a nice deal where properties are assigned by the government to special talent to attract/keep them in the region. If we win that lottery we would be able to buy an apartment at 20.000 RMB/sqm whereas these apartments have traded for 28.000 RMB/sqm already and next door compounds are trading for 30.000 RMB/sqm and higher this year. We would buy it together with the deed recording both of us, with 50% ownership for each.

Upside: You pay 30% in down payment on an apartment which immediately jumps to 150% of the value you bought it for, so it's an investment which is immediately well in-the-money. Barely any taxes and transaction costs at point of sale and you're allowed to repatriate your money afterwards.

Downside: You can only sell after 5 years. Also, we live in a $400/month rental apartment now because I'm stingy, but then we'd have to pay a mortgage every month of $1200, but we can easily handle that, that's still only $600 per person.

Basically: If in five years the apartment's value hasn't appreciated at all (so still at 30.000 RMB/sqm in January 2024), then at the point of sale we still get back almost twice the amount we put in: down payment + 60 monthly mortgage payments + basic refurnishing and maintenance. So if the market goes flat, you make 1.7x your investment. If it hits 40.000 RMB/sqm which everyone thinks is likely, you make 2.6x your initial investment.
Bonus: next to doubling or more of your money you also get to live in an apartment.

I have a decent sum in a stock portfolio and I would still contribute to it, I would just allocate a bit less towards it than now.

Did I miss something?
Could you provide me reasons not to do this?
Would you take this gamble?