Caution urged over retail property deals
- Source: Global Times
- [10:47 May 24 2010]
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By Zhou Mi
Recent government restrictions on residential property investment are causing heightened interest in commercial property, although analysts are warning inexperienced investors not to jump headfirst into deals without doing their homework.
In the face of uncertainty caused by government restrictions on the ownership of residential property, many real estate agencies are focusing more on commercial property.
"Most of our branches have changed their main business to newly-built commercial shop sales," said Ma Ji, senior man-ager of Centaline Property, the largest real estate agency in Shanghai by market share.
Centaline is currently promoting shop units in newly-built malls in outlying parts of Shanghai that recently became connected to the city's growing metro system.
One such project in Anting Town in Jiading district promises an eight percent annual return over five years, which is paid to the investor in the form of a discount on the unit's price at the time of purchase, a Centaline agent surnamed Li told the Global Times Sunday.
The developer remains responsible for leasing out the unit and collecting rent over the initial five year period. At the end of the period, the investor becomes responsible for dealing with the tenant and directly collecting rent.
"If you buy a shop for 400,000 yuan ($58,584), you will receive a discount of 160,000 yuan ($23,433) or 40 percent of the price, based on projected rental takings of eight percent of the unit's value per year over the first five years," said Li.
She added that many investors have already made such deals.
However, Xue Jianxiong, an analyst from China Real Estate Information Corporation, told the Global Times Sunday about the risks particular to investing in such schemes, especially for inexperienced investors. "Firstly, the advertised high return could be misleading, as the developer could easily inflate the asking price of the property to absorb the 'discount'," he said.
"Secondly, unlike residential property, if a shop unit has underperformed at the expiration date of the agreement, the investor will find it very difficult to sell the unit."
Xue also questioned how committed developers would be to renting out and maintaining a unit once they have sold it. "There have even been cases of developers running off once units are sold," said Xue.
