Subdivided shopping units in mainland China attract investors

Investors are lured by modest lump-sum prices and high returns in mall developments but could be faced with high management fees and taxes

PUBLISHED : Wednesday, 17 July, 2013, 12:00am
UPDATED : Wednesday, 17 July, 2013, 4:09am

Small lump-sum prices and hopes of high investment returns continue to lure Hong Kong investors into buying subdivided units at mainland shopping malls, despite their poor record.

"People are lured into buying as the marketing is attractive," said Centaline Property Agency chairman Sherman Lai Ming-kai, who cautioned that better-performing and more dependable high-quality commercial properties on the mainland could be expensive and not all were open for sale to Hong Kong buyers.

"The attraction of subdivided shops is that they are small and may cost just a few hundred thousand yuan for a unit. The seller may also advertise attractive returns of about 5 per cent or as high as 8 per cent, which cannot be found elsewhere."

Since lump-sum prices are low and returns advertised on the deals are high, the properties appeal to many inexperienced buyers ranging from retirees to housewives, said Lai.

These buyers were seeking higher returns from mainland properties because saving interest rates were so low and the risk of other investments such as foreign currencies could be high.

In response to local investor demand, Hong Kong Property Agency held an exhibition in the city last weekend showcasing mainland developer Teehope's Dongguan retail project, Teehope International Wine City. The mall offers 900 shops sized from 86 sq ft to 1,400 sq ft, with price tags ranging from HK$227,000 to HK$5 million.

Charles Chan, an agent at Hong Kong Property Agency, said the developer would offer a return of 8 per cent per annum for the first two years. A Hong Kong buyer had already invested about 1 million yuan to purchase two of the shops on offer, he said.

Investors appear to be keeping the faith despite the complaints of a group of Hong Kong investors who purchased shops at the Taishan Landmark shopping arcade in Guangdong in February, but have since reported that the 70,000 square metre mall had been largely deserted because of poor management. They said their investments were "going down the drain" as they did not receive any rent.

About 30 per cent of the 1,700 shops in the mall were bought by Hong Kong investors, some of whom claim they poured in as much as HK$5 million.

Alvin Yip Kwok-ping, managing director of investment and advisory services for China for property consultancy firm DTZ, warned that subdivided shopping malls may have problems with their tenant mix, and be subject to high management fees.

Hong Kong investors are usually required to set up wholly owned foreign enterprises to purchase retail properties on the mainland. The company would then need to pay a large range of taxes, thus affecting returns, warned Yip.

"Alternatively they can ask relatives on the mainland to buy for them instead. However, this may lead to property rights arguments in the future," he said.