Chinese Investors in the Spanish Housing Market
Aichai Hu in her new Spanish home. Photo by Carlos Rosillo.
Chinese Investors in the Spanish Housing Market
A new Chinese buyer opts for a flat in the hands of a bank
Buying a home from over 10,000 km away
El País: Oriente estrena casa
Sandra López Letón reporting from Madrid January 12, 2012
Guandi Song and his wife Aichai Hu arrived to close the deal at the exact moment they needed to sign for the purchase of their new home. Their appointment was at nine in the morning with a notary public in the Madrileño neighborhood of Parla. Before noon, Guandi returned to the Cobo Calleja Industrial Park (Fuenlabrada), where he works as a warehouse assistant, and Aichai went back to work behind the counter of her convenience store.
They didn’t have time to celebrate the purchase of their first home in Spain, a flat to remodel without an elevator, 75 square meters and three bedrooms, in Parla, which they bought from Bankia for €68,630. They will have a mortgage of €283 per month; they received financing for €61,767, that is to say, 90% of the listed value of the home.
Chinese buyers typically request mortgages worth 80% or 90% of a home’s valuation. It’s a high amount of debt that would be surprising to locals and businesses, who pay in cash, almost always after borrowing money from associates. These buyers don’t do that. “Business is their way of life. Primarily, we invest in them, and secondarily in the home,” explained Sonia Fernández, communication director for InfoChina Management, a business that specializes in selling Spanish real estate in China.
Workaholics, good payers, and now good homebuyers. Easterners have seemed to avoid the crisis that struck the average Spaniard. The Chinese community is refloating businesses in places where Spaniards are closing up shop: first the restaurants, then the one-euro stores and groceries, then the neighborhood bars, clothing stores, hair salons…and now the real estate.
These clients cannot be overlooked – most of all the proprietors of used and inexpensive housing who dream of reselling these properties once and for all. There are already 166,000 Chinese citizens residing in Spain, the majority of them from Zhejiang Province, according to the National Statistics Institute. In the Community of Madrid, there are 46,420, 4.37% of the foreign population.
Housing purchases by this group grew about 30% last year, and 40% in the area stretching from the central district of Madrid (most of all Lavapiés) through the southern cordon of the capital (Usera, Villaverde, Vallecas…) into the suburban regions (Fuenlabrada, Leganés, Getafe…) explained Diego Vázquez, Manager of Mr. House Properties, a firm which has 50% Chinese clients. The Cobo Calleja Industrial Park in Fuenlabrada is one of the most active hubs of Asian businesses and workers in the region. Consequently, the neighborhoods closest to it are the ones with the highest housing demand.
To see the Chinese buying boom in Madrid, you have to look on the low end of the market, most of all in secondhand housing. But this phenomenon also signals the arrival of buyers who have worked tirelessly ever since they set foot in Madrid, who have built businesses that are modest but privately owned, who have lived spartanly in €200/month housing, and who after years of incredible work have some savings (usually adding up to 20% of the value of a home) and a certain stability in their working lives.
These buyers seek properties in the €60,000-110,000 price range. Their average mortgage touches the €70,000 line. “They buy directly from the banks for the prices and the ease of financing,” Mr. House Agency said. Their flats are usually more than a quarter century old, are 60-90 square meters, and have at least three bedrooms. “They rarely buy properties with two bedrooms,” Vázquez indicated.
Why? That’s evident: property is another way of generating extraordinary savings in the Chinese community. They pay a monthly mortgage of €200-300 and rent two rooms for €200 each.
It helps them keep saving. They have to keep in mind the low profit margins in businesses that demand little specialization. They move between €600 and €800 per month. They look for flats with natural light that are oriented towards the north, and they prioritize the number on the address. “Sales have fallen through because of the number of the street,” Vázquez said. “They don’t want anything to do with the numbers 4, 13, and 250, for example.” And they decide quickly. They visit two or three flats, and if they decide on them in the morning, they reserve them in the evening.
The chalets, in turn, are in the crosshairs of Asian entrepreneurs with many businesses and employees in their charge. They usually buy new one-family homes worth €300,000-450,000 in new neighborhoods in Leganés, Fuenlabrada, Valdemoro, and Parla…that is to say, “everything within 20 kilometers of Cobo Calleja,” said Diego Vázquez. Although they have high purchasing power, they, too, finance 80% of the value of these homes. “In Leguario (Parla), 60% of the residents are Chinese, and they send their children to private schools that cost €700 a month,” Mr. House indicated.
This agency makes cold sales of 10 homes per month to Chinese clients. “The average Spaniard has no capacity to take on debt,” it explained. Not a week goes by without a home-shopping Asian stepping through the glass doors of the agency office in Parla. This small firm has become popular through word of mouth because, among other things, many of these buyers sign their purchase and mortgage contracts without speaking a word of Spanish. “We have two Chinese employees, and we always ask clients to come with a lawyer or agent. We also help them to register for light, gas, and other services.”
Another radically different client is the expatriate that comes to Spain to work and has a company seeking a home for him. “In that case, the company opts to buy the properties instead of renting them. They look for flats with three or four dormitories around the Salamanca neighborhood, negotiate prices, and pay between €450,000 and €600,000,” according to Adriana Verdún, property assessor for Look & Find Castellana.
Buying a Home From Over 10,000 Kilometers Away
They buy homes from China without ever crossing the sea. “There are 300 million potential investors in the gigantic Chinese market,” states InfoChina Gestión (Management). Now that the second-largest economy in the world is suffering the consequences of the real estate bubble, its investors are looking into other markets. InfoChina Gestión drives Spanish real estate sales in China online. Its website is the only one in Mandarin Chinese that sells an exclusively Spanish product. “We serve investors in the Chinese community with high purchasing power that live in one of the most Shanghai, Peking, Guangzhou, Shenzhen, Hong Kong, Hangzhou, Tianjin, and Nanjing. Investors who, because of government anti-speculation measures, cannot or do not want to buy domestically,” explained Sonia Fernández, communication director of InfoChina Gestión, on whose Spanish website developers and private individuals can publish offers which are immediately translated and moved onto the Chinese site.
“If there’s an excess of offers in Spain and an excess of capital in China, why not sell in the Chinese market?” Fernández asked. Small investors buy €80,000 housing for rent and have profit margins of over 5%. Institutions opt for properties in the millions of euros. Nevertheless, there is a long way to go for Spain to become an investment destination. Asians prefer to invest their liquid assets in the United States, Canada, and Australia because of those countries’ immigration policies and low prices.