Half of China's millionaires consider emigration

[momopi]

http://usa.chinadaily.com.cn/china/2011 ... 016424.htm

Half of China's millionaires consider emigration
Updated: 2011-11-01 14:00
(Xinhua)

BEIJING - A recent survey on Chinese millionaires shows that nearly half of them consider emigrating abroad and 14 percent have already emigrated or applied.

Forty-six percent of the 980 respondents said they intended to emigrate in the survey jointly conducted by the Hurun Research Institute and Bank of China from May to September. The survey findings have been published in the Private Banking White Paper 2011.

The survey targeted China's "high net worth individuals" with personal asset above 10 million yuan ($1.58 million) in 18 major cities including Beijing, Shanghai, Wuhan, Nanjing, Dalian and Suzhou.

The average age of the respondents was 42, with personal assets worth more than 60 million yuan on average.

According to the survey, one-third of the respondents claimed to have overseas assets, mostly in real estate, accounting for 19 percent of their total investable assets. Moreover, nearly 30 percent of the rest were planning to invest overseas in the next three years.

Half of the respondents said the reason why they invested abroad was to give their children better education opportunities, while one third said the investment was out of emigration considerations.

[momopi]

http://online.wsj.com/article/SB1000142 ... lenews_wsj

Foreigners' Sweetener: Buy House, Get a Visa
By NICK TIMIRAOS

The reeling housing market has come to this: To shore it up, two Senators are preparing to introduce a bipartisan bill Thursday that would give residence visas to foreigners who spend at least $500,000 to buy houses in the U.S.

The provision is part of a larger package of immigration measures, co-authored by Sens. Charles Schumer (D., N.Y.) and Mike Lee (R., Utah), designed to spur more foreign investment in the U.S.

Supporters of the bill, co-authored by Sen. Charles Schumer, say it would help make up for American buyers who are holding back.

Foreigners have accounted for a growing share of home purchases in South Florida, Southern California, Arizona and other hard-hit markets. Chinese and Canadian buyers, among others, are taking advantage not only of big declines in U.S. home prices and reduced competition from Americans but also of favorable foreign exchange rates.

WSJ's Nick Timiraos details a proposed plan in which foreigners who spend $500,000 in cash on U.S. real estate would be given visas. Photo by Scott Olson/Getty Images

To fuel this demand, the proposed measure would offer visas to any foreigner making a cash investment of at least $500,000 on residential real-estate—a single-family house, condo or townhouse. Applicants can spend the entire amount on one house or spend as little as $250,000 on a residence and invest the rest in other residential real estate, which can be rented out.
Journal Community

The measure would complement existing visa programs that allow foreigners to enter the U.S. if they invest in new businesses that create jobs. Backers believe the initiative would help soak up an excess supply of inventory when many would-be American home buyers are holding back because they're concerned about their jobs or because they would have to take a big loss to sell their current house.

"This is a way to create more demand without costing the federal government a nickel," Sen. Schumer said in an interview.

International buyers accounted for around $82 billion in U.S. residential real-estate sales for the year ending in March, up from $66 billion during the previous year period, according to data from the National Association of Realtors. Foreign buyers accounted for at least 5.5% of all home sales in Miami and 4.3% of Phoenix home sales during the month of July, according to MDA DataQuick.

Foreigners immigrating to the U.S. with the new visa wouldn't be able to work here unless they obtained a regular work visa through the normal process. They'd be allowed to bring a spouse and any children under the age of 18 but they wouldn't be able to stay in the country legally on the new visa once they sold their properties.

The provision would create visas that are separate from current programs so as to not displace anyone waiting for other visas. There would be no cap on the home-buyer visa program.

Over the past year, Canadians accounted for one quarter of foreign home buyers, and buyers from China, Mexico, Great Britain, and India accounted for another quarter, according to the National Association of Realtors. For buyers from some countries, restrictive immigration rules are "a deterrent to purchase here, for sure," says Sally Daley, a real-estate agent in Vero Beach, Fla. She estimates that around one-third of her sales this year have gone to foreigners, an all-time high.

"Without them, we would be stagnant," says Ms. Daley. "They're hiring contractors, buying furniture, and they're also helping the market correct by getting inventory whittled down."

In March, Harry Morrison, a Canadian from Lakefield, Ontario, bought a four-bedroom vacation home in a gated community in Vero Beach. "House prices were going down, and the exchange rate was quite favorable," said Mr. Morrison, who first bought a home there from Ms. Daley four years ago.

While a special visa would allow Canadian buyers like Mr. Morrison to spend more time in the U.S., he said he isn't sure "what other benefit a visa would give me."

The idea has some high-profile supporters, including Warren Buffett, who this summer floated the idea of encouraging more "rich immigrants" to buy homes. "If you wanted to change your immigration policy so that you let 500,000 families in but they have to have a significant net worth and everything, you'd solve things very quickly," Mr. Buffett said in an August interview with PBS's Charlie Rose.

The measure could also help turn around buyer psychology, said mortgage-bond pioneer Lewis Ranieri. He said the program represented "triage" for a housing market that needs more fixes, even modest ones.

But other industry executives greeted the proposal with skepticism. Foreign buyers "don't need an incentive" to buy homes, said Richard Smith, chief executive of Realogy Corp., which owns the Coldwell Banker and Century 21 real-estate brands. "We have a lot of Americans who are willing to buy. We just have to fix the economy."

The measure may have a more targeted effect in exclusive markets like San Marino, Calif., that have become popular with foreigners. Easier immigration rules could be "tremendous" because of the difficulty many Chinese buyers have in obtaining visas, says Maggie Navarro, a local real-estate agent.

Ms. Navarro recently sold a home for $1.67 million, around 8% above the asking price, to a Chinese national who works in the mining industry. She says nearly every listing she's put on the market in San Marino "has had at least one full price cash offer from a buyer from mainland China."

Corrections & Amplifications
Harry Morrison bought a four-bedroom vacation home in Vero Beach in March. He first bought a home there four years ago from Sally Daley, a local real-estate agent. An earlier version of this story incorrectly said Ms. Daley sold the four-bedroom home to Mr. Morrison in March.

Write to Nick Timiraos at nick.timiraos@wsj.com

[Adama]

Why would they want to leave China if they are millionaires? You'd think their money would go that much farther there.

[Repatriate]

Why would they want to leave China if they are millionaires? You'd think their money would go that much farther there.

Not necessarily. Some of them desire stable quality housing and lots of land that won't be randomly confiscated by the government for some reason. Right now U.S. real estate is comparably cheap and far better quality. $500,000-$1 million dollar houses is nothing to these people.

Plus these millionaire types aren't going to be socializing with your bread and butter average Joe and Jane Americans. They will import their wives/mistresses and will be able to live jet set lifestyles avoiding the daily U.S. social grind.

[Rock]

Why would they want to leave China if they are millionaires? You'd think their money would go that much farther there.

If you strip-out health care and avoid high cost areas (SoCal, NYC, etc.) USA offers a very high value-for-money in many areas relative to most other countries. Also, land and housing, an important consideration for wealthy too, is generally a lot more expensive in China than the States.

I find it interesting how expensive poorer countries can end-up being sometimes if you pursue a life quality similar to what you are used to in the States.

[momopi]

Why would they want to leave China if they are millionaires? You'd think their money would go that much farther there.

It's a good time to invest in US RE. i.e. Along the I-15 FWY in CA, the property prices have fallen by almost 2/3rds since 2005-2006.

For example, in 2005 this property was sold for $304,000. The asking price today is $119,000:
http://www.redfin.com/CA/Murrieta/33700 ... me/8168193

If the "house for VISA" bill passes, I'll probably partner with my doctor to get Chinese investors over here. It'd be a good time to get off my butt and finally get that realtor's license.

[Rock]

Why would they want to leave China if they are millionaires? You'd think their money would go that much farther there.

It's a good time to invest in US RE. i.e. Along the I-15 FWY in CA, the property prices have fallen by almost 2/3rds since 2005-2006.

For example, in 2005 this property was sold for $304,000. The asking price today is $119,000:
http://www.redfin.com/CA/Murrieta/33700 ... me/8168193

If the "house for VISA" bill passes, I'll probably partner with my doctor to get Chinese investors over here. It'd be a good time to get off my butt and finally get that realtor's license.

Interesting excerpt from "The Economics of Polarization" article posted in another thread with same title by Mr. S:

That is an astonishing outcome; in the past, mortgage interest typically was two or three times the property tax bill. Put another way, the combined cost of mortgage interest and property taxes is close to a trillion dollars a year today, about the same as at the peak of the housing bubble. Rising property taxes have just about wiped out the impact of lower interest rates and lower home prices on households. The property tax data include commercial as well as residential taxes, to be sure, but more than two-thirds of total property tax collections are from households.

Perhaps the actual cashflow burden of supporting a property purchase is not much different than during peak of property bubble?

[momopi]

Interesting excerpt from "The Economics of Polarization" article posted in another thread with same title by Mr. S:
That is an astonishing outcome; in the past, mortgage interest typically was two or three times the property tax bill. Put another way, the combined cost of mortgage interest and property taxes is close to a trillion dollars a year today, about the same as at the peak of the housing bubble. Rising property taxes have just about wiped out the impact of lower interest rates and lower home prices on households. The property tax data include commercial as well as residential taxes, to be sure, but more than two-thirds of total property tax collections are from households.
Perhaps the actual cashflow burden of supporting a property purchase is not much different than during peak of property bubble?

1. In order to qualify for the RE investment VISA, the foreign investor usually has to be FCB (foreign case buyer) because they cannot qualify for a mortgage in the US right now (correction: foreign national mortgages may be avail). A cash buyer does not have a mortgage, and therefore has no mortgage interest to pay.

2. The Constitution of the State of California, Article 13A (Prop 13) states: "Section 1. (a) The maximum amount of any ad valorem tax on real property shall not exceed one percent (1%) of the full cash value of such property. The one percent (1%) tax to be collected by the counties and apportioned according to law to the districts within the counties."

Your base property tax is assessed at 1% of the original purchase price, and annual increases may not exceed 2% per year. However, in California the Community Facilities District Act (Mello-Roos) allows the county to impose additional taxes to pay for infrastructure improvements, usually higher for new construction. Special assessments, bonds, and HOA's all add to the cost of home ownership.

[Rock]

Interesting excerpt from "The Economics of Polarization" article posted in another thread with same title by Mr. S:
That is an astonishing outcome; in the past, mortgage interest typically was two or three times the property tax bill. Put another way, the combined cost of mortgage interest and property taxes is close to a trillion dollars a year today, about the same as at the peak of the housing bubble. Rising property taxes have just about wiped out the impact of lower interest rates and lower home prices on households. The property tax data include commercial as well as residential taxes, to be sure, but more than two-thirds of total property tax collections are from households.
Perhaps the actual cashflow burden of supporting a property purchase is not much different than during peak of property bubble?

1. In order to qualify for the RE investment VISA, the foreign investor usually has to be FCB (foreign case buyer) because they cannot qualify for a mortgage in the US right now. A cash buyer does not have a mortgage, and therefore has no mortgage interest to pay.

2. The Constitution of the State of California, Article 13A (Prop 13) states: "Section 1. (a) The maximum amount of any ad valorem tax on real property shall not exceed one percent (1%) of the full cash value of such property. The one percent (1%) tax to be collected by the counties and apportioned according to law to the districts within the counties."

Your base property tax is assessed at 1% of the original purchase price, and annual increases may not exceed 2% per year. However, in California the Community Facilities District Act (Mello-Roos) allows the county to impose additional taxes to pay for infrastructure improvements, usually higher for new construction. Special assessments, bonds, and HOA's all add to the cost of home ownership.

That Community Facilities District Act seems to make a significant difference. Because my friend out in Sun City is paying close to 2% (estimated market value) on his 4 year-old home.

Mortgage or not, property taxes matter a lot. For example, a property accessed at 500K with a 2% RE tax will cost $833 per month or 10K per year just in taxes. At a risk-free rate of 4%, that sort of cashflow liability has value of 250K, effectively raising the cost of your home by 50%! Then you have maintenance and/or HOA fees. Owning a home in the US often isn't as cheap as it looks at first glance.

And to put things into perspective, there are many countries where property taxes are just a tiny fraction of what they are in the US.

EDIT: OK, I saw your PM. The excerpt above was referring to the country in aggregate. But the crises has not hit all areas equally. In some parts of the country, prices have come down so much below the average that increased tax rates are not a match for the much lower purchase price combined with lower mortgage rates. Moreover, some jurisdictions have actually lowered the actual tax amount to reflect the lower market value of the property. That's happened in Ft. Myers, FL where I am now. Annual tax bill on this condo has been reduced some 30% since 2009.

In such an environment, I don't doubt that there are some juicy +CF deals available on properties you buy and rent. I do think a person should stick to his local area when making such investments. Otherwise, the management burden, and associated cost, goes up dramatically.

[NorthAmericanguy]

If the "house for VISA" bill passes, I'll probably partner with my doctor to get Chinese investors over here. It'd be a good time to get off my butt and finally get that realtor's license.

Hmm, I never heard of this bill momopi. I looked it up on the web and found a few comments about it:




"Politics is a dirty game; the US senators are just trying to scam those naive Chinese people into departing their hard earned savings. Don’t be misled, remembered those Chinese of the 18th century that were conned into slavery in the US to build the railway lines or worked in the gold mines with false promises of good food and immense riches but in the end many were ill treated and died in despair in unmarked mass graves. If US are in such a wonderful state, jobless Americans won’t be flocking to China and aboard for jobs and there will be no occupied the Wall Street protests. Let\'s be sober, life depicted in Hollywood movies and the life in the real America is entirely two different entities. The much hyped American dream has turned into a nightmare for now."


"Another US of A scam. Does China know what will happen to China's purchase of US treasury? Take a wild guess."



"In bold letters: THIS MIGHT BE THE START OF ANOTHER CORRUPTION IN THE GOVERNMENT WHEREBY GOVERNMENT OFFICIALS WILL STEAL MONEY AND SEND THEIR WIFE,CHILDREN AND MISTRESSES IN U.S TO BUY EXPENSIVE CONDOS.

IT'S URGENT THAT CHINESE LEADERSHIP MUS BE VIGILANT AND MUST BE IN THE KNOW WITH WHAT THE BANKERS ARE DOING AND TO WHOM THEY ALLOWED CREDIT."


"just more BS from the US GOV its not going to help anyone but the GOV. Its just one more scam from the GOV to make money Chinese people should not waste money buying homes in the US there is little work in the US."


http://www.chinadaily.com.cn/world/2011 ... 954484.htm

[NorthAmericanguy]

"Why would anyone sell visas to the highest bidder? That's what this bill would do. It packages an overvalued house with a freebie from government in a form of visa. If government wants to sell visas then do so openly. But do not mingle two problems into one. It also bails out those who overpaid for houses (or speculated) in the bubble years without giving relieve to younger people who would love to buy a house at more affordable prices. Let prices drop. Let markets work. Let recovery begin."



http://online.wsj.com/article/SB1000142 ... 3Dcomments

[momopi]

Your base property tax is assessed at 1% of the original purchase price, and annual increases may not exceed 2% per year. However, in California the Community Facilities District Act (Mello-Roos) allows the county to impose additional taxes to pay for infrastructure improvements, usually higher for new construction. Special assessments, bonds, and HOA's all add to the cost of home ownership.
That Community Facilities District Act seems to make a significant difference. Because my friend out in Sun City is paying close to 2% (estimated market value) on his 4 year-old home.
Mortgage or not, property taxes matter a lot. For example, a property accessed at 500K with a 2% RE tax will cost $833 per month or 10K per year just in taxes. At a risk-free rate of 4%, that sort of cashflow liability has value of 250K, effectively raising the cost of your home by 50%! Then you have maintenance and/or HOA fees. Owning a home in the US often isn't as cheap as it looks at first glance.
And to put things into perspective, there are many countries where property taxes are just a tiny fraction of what they are in the US.

Newer/recent developments have higher Mello-Roos, because the local government and builder are passing the cost of infrastructure improvements on to the buyer. Mello-Roos is usually a 25-year bond, but the 25 year period can start from the the year that the last bond was issued, NOT the year of new construction/purchase. So if you bought in 2010 and the last bond was issued in 2015, your Mello-Roos will expire in 2015 + 25 = 2040.

The basic value of a property is equal to its potential income, plus premiums (location, schools, beach) or downers (former drug den). So if a SFR can be rented for $1,500/mo, and it costs you $1,000/mo to own it (mortgage, taxes, HOA, insurance, gardener, etc), the property is below value, making it cheaper to buy than rent. But if the same property costs $3,000/mo to own, its over-priced and cheaper to rent than own. Properties in very desirable areas will almost always be over-priced due to the premiums.

[Repatriate]

The basic value of a property is equal to its potential income, plus premiums (location, schools, beach) or downers (former drug den). So if a SFR can be rented for $1,500/mo, and it costs you $1,000/mo to own it (mortgage, taxes, HOA, insurance, gardener, etc), the property is below value, making it cheaper to buy than rent. But if the same property costs $3,000/mo to own, its over-priced and cheaper to rent than own. Properties in very desirable areas will almost always be over-priced due to the premiums.

This is a very basic question but what do you think about investing in lower end Thai condo units in good developments for rental?

A 36 sqm 1 bedroom Thai condo costs about 1.6 million baht, probably closer to 1.8 million baht for foreigners after various fees and exchange rate hits which comes out to $59,000 or so. These units can be rented to foreigners or Thais on long term contracts for 9,000 baht a month ($295) so about $3540 - ($200 annual condo fees) = $3340 x (15 years) = $50,100

I'm not sure about tax on leasing property here but I hear it's easy to avoid and low.

Your average condo building from a top development in Thailand lasts about 20 years before they consider renovation or rebuilding. Resell value on units older than 10 years is a bit questionable though.

[Rock]

The basic value of a property is equal to its potential income, plus premiums (location, schools, beach) or downers (former drug den). So if a SFR can be rented for $1,500/mo, and it costs you $1,000/mo to own it (mortgage, taxes, HOA, insurance, gardener, etc), the property is below value, making it cheaper to buy than rent. But if the same property costs $3,000/mo to own, its over-priced and cheaper to rent than own. Properties in very desirable areas will almost always be over-priced due to the premiums.

This is a very basic question but what do you think about investing in lower end Thai condo units in good developments for rental?

A 36 sqm 1 bedroom Thai condo costs about 1.6 million baht, probably closer to 1.8 million baht for foreigners after various fees and exchange rate hits which comes out to $59,000 or so. These units can be rented to foreigners or Thais on long term contracts for 9,000 baht a month ($295) so about $3540 - ($200 annual condo fees) = $3340 x (15 years) = $50,100

I'm not sure about tax on leasing property here but I hear it's easy to avoid and low.

Your average condo building from a top development in Thailand lasts about 20 years before they consider renovation or rebuilding. Resell value on units older than 10 years is a bit questionable though.

Your hypothetical numbers suggest a cap rate of 5.7%, not really very compelling when you consider the hassle of owning a foreign property unless you have good reason to believe it will appreciate significantly. As a foreigner in Thailand, I don't think you get a local mortgage. Sometimes, you can get them in US$ from the SP branch of an international bank such as HSBC but the rates are generally not very economical. I think Momopi is uncovering more attractive opportunities on his own turf in Socal.

I did something similar in Bangkok a few years ago which ended-up generating a net cap rate of 6.7% once I secured long term renters. When I bought, there was an exemption of transfer taxes and Baht was a lot cheaper in US$ terms then. The exchange rate costs are very low cus spread between USD/THB buy-sell on wire transfers is quite narrow in the big Thai banks. You don't pay any property taxes until you sell property and they are based on a formula which factors in holding period and some other parameters. You can get the formula from CBRE or any of the other larger brokers there. I've been told there are ways to avoid at least part of it but have not confirmed that.

[momopi]

The basic value of a property is equal to its potential income, plus premiums (location, schools, beach) or downers (former drug den). So if a SFR can be rented for $1,500/mo, and it costs you $1,000/mo to own it (mortgage, taxes, HOA, insurance, gardener, etc), the property is below value, making it cheaper to buy than rent. But if the same property costs $3,000/mo to own, its over-priced and cheaper to rent than own. Properties in very desirable areas will almost always be over-priced due to the premiums.

This is a very basic question but what do you think about investing in lower end Thai condo units in good developments for rental?
A 36 sqm 1 bedroom Thai condo costs about 1.6 million baht, probably closer to 1.8 million baht for foreigners after various fees and exchange rate hits which comes out to $59,000 or so. These units can be rented to foreigners or Thais on long term contracts for 9,000 baht a month ($295) so about $3540 - ($200 annual condo fees) = $3340 x (15 years) = $50,100
I'm not sure about tax on leasing property here but I hear it's easy to avoid and low.
Your average condo building from a top development in Thailand lasts about 20 years before they consider renovation or rebuilding. Resell value on units older than 10 years is a bit questionable though.

I have zero experience with RE in Thailand, and I have never set foot in TH. The closest experience I can claim was researching investment RE in Malaysia in 2005 and 2006. Based on my amateur observation, MY's RE laws and ownership rules seem better established (and clearer) than TH.

Based on your description, the Thai condo appears to be a depreciating asset. Also, HOA fees (and services provided) is dependent on how many units are paying. As the building ages and people move out, your HOA fees may go up and the level of maintenance on the building will go down. I personally avoid condos and high HOA's in the US. Given choice between a condo with $200 HOA and a SFR with $50 HOA, I'd take the SFR. Although the condo association offers basic insurance and exterior maintenance, you can take the $150 difference and set up your own reserve fund for future maintenance expense.

For $50k, I think you can do better elsewhere. It's also possible to look into ex-pat mortgage, foreign national mortgage, and mufti-currency mortgages so you can purchase better investment RE elsewhere, though I have no experience with those types of loans.

"Why would anyone sell visas to the highest bidder? That's what this bill would do. It packages an overvalued house with a freebie from government in a form of visa. If government wants to sell visas then do so openly. But do not mingle two problems into one. It also bails out those who overpaid for houses (or speculated) in the bubble years without giving relieve to younger people who would love to buy a house at more affordable prices. Let prices drop. Let markets work. Let recovery begin."
http://online.wsj.com/article/SB1000142 ... 3Dcomments

Well, EB-5 VISA's are basically selling residency rights to anyone with half a million dollars. If they allow RE investments to qualify, I suppose they could make it socially responsible by requiring FCB's to invest in properties that require minimum $20,000-$30,000+ in repairs.