Dalian, China Real Estate: A Look at China’s Popular Second-Tier City

No doubt the biggest cities in China get the lion’s share of attention from international property investors. Still, second-tier ones such as Dalian have quietly worked their way …

No doubt the biggest cities in China get the lion’s share of attention from international property investors. Still, second-tier ones such as Dalian have quietly worked their way into the spotlight. With property prices sky-rocketing in Beijing and Shanghai, foreign buyers are looking at smaller cities and finding better deals.

The number of expatriates in China is growing. People of all ages come to explore and possibly settle in the Asian giant. Most come as language experts since the Chinese are keen on learning English. In the majority of cases, the pay is more than adequate to cover living and travel expenses. It is not unusual to bump into a wayward English teacher in seemingly remote parts of China. Others expats come with multi-national corporations that offer substantial packages to entice western based employees. A few open their own businesses in an attempt to get their share of the ever expanding dragon pie.

With its desirable seaside location, thriving city center and booming economy, it is not surprising that Dalian is attracting a fair number of expatriate settlers and real estate investors. While most foreigners still come from Japan and Korea and Russia, the number of westerners — from U.S., Canada, and Europe — is growing fast. And some have learned the language, bought homes, and settled-in comfortably.

About Dalian

Flanked by the Yellow Sea in the east and Bohai Sea in the west, the port city of Dalian is the second biggest city in China’s Liaoning Province. This bustling city of roughly six million people doesn’t have a particularly attractive weather. It is hot and humid in the summer and frigid cold and windy in the winter with pleasant but brief autumns and springs.

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Dalian’s recent history is marked by British, Japanese and Russian occupation but it was eventually returned to the Chinese in 1950. After the Chinese gained full control of the city from the Soviets, the city emerged as a shipbuilding industry powerhouse. Dalian’s economy boomed through the 90’s sporting impressive double digit annual economic growth. The latest available Chinese government data shows that the city’s GDP jumped by 16.5 percent in 2008 compared to the previous year.

In addition to shipbuilding, the main industries in Dalian include electronics, machine manufacturing, oil refining and petrochemicals. The city has a successful IT center and has seen the interest of multi-national corporations in opening branches in the area rise. Intel’s recent multi-billion investment in a chip factory has given a huge boost to Dalian’s image. Over the last decade, large retailers such as Wal-Mart, Carrefour (France) and Metro (Germany), and most recently IKEA (Sweden) have opened branches to tap into the city’s ever expanding potential.

Real estate in Dalian

It is difficult to find hard data on the current state of the real estate market in Dalian. This lack of easily accessible and reliable information can be disconcerting to potential investors. Still, anecdotal evidence suggests that the property sector in the city has been growing impressively. “When I bought my apartment, it cost me RMB 3380 [$495] per square meter but if I want to buy it now, I would have to pay RMB 5,800 [$850],” said Sandy Defieux, who bought an apartment in Jinshitan — a Dalian suburb — three years ago.

Luxury residential property in downtown can cost upwards of RMB 13,918 (roughly $1,930) per square meter, according a 2009 third quarter report by CB Richard Ellis — an international property consultancy firm with a branch in Dalian. “The Dalian luxury residential leasing and sales market rebounded to varying degrees in the third quarter,” stated the report.

Buying property in Dalian

While foreigners are allowed to purchase property in China, there are some restrictions placed on what and where they can buy. For one, all land is owned by the government but buyers can obtain the rights to use the land. In addition foreigners “can only purchase real estate that is for sale to foreigners,” according to Lehman, Lee & Xu, a commercial law firm with offices through out China. The same is true for Dalian. “Yes foreigners can own property,” Defieux confirmed. “But it depends on the location of the apartment and whether or not the company that built it has permission to sell to foreigners.”

International buyers are advised to hire a reputable local licensed lawyer to walk them through their purchase. The laws can be confusing and with language and cultural barriers combined, things can go wrong very quickly. In addition, if purchasing an off-plan property, it is important to remember that the delivery date will most probably be much later than what the developer claims. “It took another year from the date I was told I could have the key to my apartment,” said Defieux. This apparently is very common and buyers can sue developers over excessive lateness. However, pushing a case through the court system it is an unpleasant and lengthy process.

Buyers should be aware that building managers in China can make or break the atmosphere of any given complex. These companies, known as ‘Wuye’ in China, take care of security, cleaning of all common areas, land-escaping of the surrounding grounds, repairs and other crucial services. If the ‘Wuye’ in an apartment complex is not good then the services will likely be substandard, affecting the residents’ quality of life.

Looking ahead

Chinese property stocks will likely grow by as much as 15 percent over the next year, according to a recent report by JP Morgan. Real estate stocks have already done severe price corrections. “A lot of the bad news is already priced into the stocks,” said Jing Ulrich, Managing Director JP Morgan’s China branch — in an interview on Bloomberg.com. “We are reasonably upbeat on the overall sector,” she said. This is likely good news for Dalian’s property sector.

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