High risks to big dividends
How did you first get interested in investing across the border?
A few years ago, my husband's friend started to acquire properties in Shenzhen. When my husband mentioned it, I was interested. Before that I seldom went to Shenzhen, but when I started to visit the Wang Gang region I was surprised by three things: the development in Shenzhen's Futian area is rapid, the infrastructure is modern and the place is full of energy. Transportation to and from Hong Kong is also convenient with 24-hour border crossings. My husband and I started to study the city and gathered some basic statistical data, such as the number of Hong Kong people living in Shenzhen and their salary levels.
Was it easy to begin with?
It was both fun and hard work in the beginning. In order to get to know what was on offer in Shenzhen we planned a two-phase study. First we went to Shenzhen every weekend, checked property agents and visited different developments from morning to night for several weeks. In phase two we rented a flat for two months and continued our in-depth research.
How many properties do you own and what kind of challenges do they entail?
I have acquired four properties and I am engaged in a lawsuit with the original landlord of another one I bought. I have to say it's very complicated, but I guess I'm lucky enough to have learnt almost all the lessons very quickly. For example, when I tried to acquire an office, it took us a whole night to negotiate with the landlord together with the property agent. The landlord kept changing the request price and adding amendments to the standard terms of the agent's buy-sell agreement. The landlord finally signed the agreement and took our deposit, but didn't execute according to the agreement. She kept making excuses to delay for around four months and wouldn't return the deposit. We finally decided to sue her and our lawyer helped us to freeze the property to stop any resale. At the same time, we had to freeze the same amount of our own assets. Luckily the amount in this case was small, and we learnt a lot in the process. But if it was a big deal, our costs would have been very high. We finally won the case, but the landlord still hasn't paid back the money. We now have to hire the lawyer again to continue chasing after the money. The whole process is very time consuming.
What about getting a mortgage?
The mortgage application process is different from Hong Kong, and very complicated and drawn out. Because of the taxation issues in the mainland, the bank only uses the 'after-tax' property value to work out the size of the loan. For example, one property I tried to acquire was worth around HK$4.2 million. I wanted to convert it into a big business centre, targeting Hong Kong people. The first-hand price acquired by the original landlord was about HK$3 million. In this case, the tax and other fees he needed to pay came close to a million. The bank therefore discounts these taxes and the property will be valued by the bank as only HK$3 million. This directly effects the mortgage amount you can get. Each Hong Kong person can only exchange US$50,000 worth of renminbi a year. So getting renminbi for the deposit is not easy. Another problem is transferring renminbi back to Hong Kong dollars.
What advice would you give to someone considering buying on the mainland?
First, check if the property provides a Hong Kong dollar mortgage, otherwise, don't consider buying it, as using a renminbi mortgage is not a good option. Shenzhen's residential property market is in correction at the moment, so Hong Kong's would be more attractive in comparison. To play the property game, you need to have a big network of friends in Hong Kong and, especially, in the mainland.
So far, none - not even with the lawsuit as the deal was a small one. When you go into a market which is not mature, you should be prepared to learn a few lessons before you take profit. The mainland market is high risk, but can have high returns.
What kind of opportunities lie ahead for cross-border investors?
A lot of IT firms are setting up headquarters in Shenzhen. I believe the demand for technology parks will still be big, so I shall keep the offices and IT factory I bought. For residential properties, I think Hong Kong would be more attractive in the coming year as new infrastructure will give better access to some areas. For example, the extension of the present KCR lines. Yuen Long and Tuen Mun are also becoming new centres between Hong Kong and Shenzhen. Some Hong Kong people living in Shenzhen may consider moving back because of better road and rail links. Extending the KCR link to Admiralty will also make the border more accessible.