Buying a Store

[Randy W]

Have you guys heard of this? There is a new shopping center smack dab in the center of Yulin, scheduled to open on May 1.

 

We can buy a store in the shopping center for a price. The shopping center deducts an amount equal to the first three years rent (=3x7.5% of the original price), and that is the actual amount you pay. Then nothing happens for three years (except that the shopping center collects the rent - you don't see anything). Then after 3 years, you begin collecting the rent. The shopping center finds (and controls who can set up shop where) tenants, and collects rent from everybody at a price fixed by the shopping center.

 

So it seems like a basic 7.5% return on your investment, plus (hopefully) appreciation.

 

And, to the wife, a lifetime income.

 

And the HR person at the University says it'll have the first pizza restaurant in the city (although we've had excellent pizza at other restaurants), so she's glad for that (the foreign teachers usually mention the fact of no pizza restaurants)

 

In the US, of course, the typical mall owner would just keep it all to themselves. Selling the shops, of course, would allow him to take the money and develop somewhere else

 

Am I missing anything?

 

http://i46.tinypic.com/2z6tlcg.jpg

 

The building as it is today (the upper floors will be homes)

 

http://i47.tinypic.com/6rimpu.jpg

[GDBILL]

Have you guys heard of this? There is a new shopping center smack dab in the center of Yulin, scheduled to open on May 1.

 

We can buy a store in the shopping center for a price. The shopping center deducts an amount equal to the first three years rent (=3x7.5% of the original price), and that is the actual amount you pay. Then nothing happens for three years (except that the shopping center collects the rent - you don't see anything). Then after 3 years, you begin collecting the rent. The shopping center finds (and controls who can set up shop where) tenants, and collects rent from everybody at a price fixed by the shopping center.

 

So it seems like a basic 7.5% return on your investment, plus (hopefully) appreciation.

 

And, to the wife, a lifetime income.

 

And the HR person at the University says it'll have the first pizza restaurant in the city (although we've had excellent pizza at other restaurants), so she's glad for that (the foreign teachers usually mention the fact of no pizza restaurants)

 

In the US, of course, the typical mall owner would just keep it all to themselves. Selling the shops, of course, would allow him to take the money and develop somewhere else

 

Am I missing anything?

 

http://i46.tinypic.com/2z6tlcg.jpg

 

The building as it is today (the upper floors will be homes)

 

http://i47.tinypic.com/6rimpu.jpg

 

Your description of the costs and the cut the shoppping center management takes isn't very clear.

 

A couple of things I'd be thinking of are:

 

1. As an expat you cannot buy commercial real estate so your spouse or other Chinese national would have to be the owner;

 

2. Commercial mortgages are extremely difficult to get from banks;

 

3. Occupancy rates on commercial real estate in bigger cities like Beijing, Shanghai and Guangzhou are only about 40% to 50%.

 

4. You need to figure in tax on the rental income. Most commercial ventures that would rent from you require fa piaos (tax invoices) and that will cost you about 5% plus the imputed income taxes.

 

5. Location, location, location. If the location is very good or has long-term potential, it's a plus. But just because the location is good now doesn't mean it will be good ten years from now.

 

6. The developer will still retain ownership of large segments of the commercial space. It's useful to know what leases they have lined up for that space. For example, if they have a lease agreement with, say, Carrefour or Walmart, that drives traffic to all the other small surrounding shops.

 

7. Potential future exchange rate fluctuations might be important.

[b.c]

Not trying to be pessimistic, but my experience suggests that there is usually something 'missing' or unforeseen complications, disadvantages, etc in regards to any business transaction or venture in china.

 

For lack of better words, Chinese businessmen can be very opportunistic and clever. Before doing such a thing I would try to seek counsel from someone (preferably a foreigner) that has had experience with a similar endeavor.

[Randy W]

Have you guys heard of this? There is a new shopping center smack dab in the center of Yulin, scheduled to open on May 1.

 

We can buy a store in the shopping center for a price. The shopping center deducts an amount equal to the first three years rent (=3x7.5% of the original price), and that is the actual amount you pay. Then nothing happens for three years (except that the shopping center collects the rent - you don't see anything). Then after 3 years, you begin collecting the rent. The shopping center finds (and controls who can set up shop where) tenants, and collects rent from everybody at a price fixed by the shopping center.

 

So it seems like a basic 7.5% return on your investment, plus (hopefully) appreciation.

 

And, to the wife, a lifetime income.

 

And the HR person at the University says it'll have the first pizza restaurant in the city (although we've had excellent pizza at other restaurants), so she's glad for that (the foreign teachers usually mention the fact of no pizza restaurants)

 

In the US, of course, the typical mall owner would just keep it all to themselves. Selling the shops, of course, would allow him to take the money and develop somewhere else

 

Am I missing anything?

 

 

 

Your description of the costs and the cut the shoppping center management takes isn't very clear.

 

That is basically an open question here - before today I had no idea even of the arithmetic involved. Do you have any idea of what I might expect here?

 

A couple of things I'd be thinking of are:

 

1. As an expat you cannot buy commercial real estate so your spouse or other Chinese national would have to be the owner;

 

Plenty of those around here - no problem

 

2. Commercial mortgages are extremely difficult to get from banks;

 

We can pay 100%, or 50% with the rest financed for 10 years by the mgmt at something under 7% (I haven't done the arithmetic here, but we'd be paying for 3 years with no income - this option is not very appealing)

 

3. Occupancy rates on commercial real estate in bigger cities like Beijing, Shanghai and Guangzhou are only about 40% to 50%.

 

Seems closer to 100% here for good locations. We would only buy on the 1st floor, and near the front door

 

4. You need to figure in tax on the rental income. Most commercial ventures that would rent from you require fa piaos (tax invoices) and that will cost you about 5% plus the imputed income taxes.

 

I'll ask - thanks

 

5. Location, location, location. If the location is very good or has long-term potential, it's a plus. But just because the location is good now doesn't mean it will be good ten years from now.

 

Pretty much dead center of town, both physically and commercially

 

6. The developer will still retain ownership of large segments of the commercial space. It's useful to know what leases they have lined up for that space. For example, if they have a lease agreement with, say, Carrefour or Walmart, that drives traffic to all the other small surrounding shops.

 

Nothing large that I know of

 

7. Potential future exchange rate fluctuations might be important.

 

A good reason to shift more to the RMB

 

Thanks for your input - I appreciate it.

 

The wife is pretty much handling it - I'm just along for the ride.

[Randy W]

Not trying to be pessimistic, but my experience suggests that there is usually something 'missing' or unforeseen complications, disadvantages, etc in regards to any business transaction or venture in china.

 

For lack of better words, Chinese businessmen can be very opportunistic and clever. Before doing such a thing I would try to seek counsel from someone (preferably a foreigner) that has had experience with a similar endeavor.

 

 

That's why I'm here!

[Randy W]

Nah - too much money to tie up for now (until I'm 59 1/2) - we'll pass

 

 

Probably a good long term investment, but would just tie up our budget for now.

[tsap seui]

Nah - too much money to tie up for now (until I'm 59 1/2) - we'll pass

 

 

Probably a good long term investment, but would just tie up our budget for now.

 

Good luck to ya Randy. You'll find something.

 

tsap seui

[ShaQuaNew]

3. Occupancy rates on commercial real estate in bigger cities like Beijing, Shanghai and Guangzhou are only about 40% to 50%.

 

 

Seems closer to 100% here for good locations. We would only buy on the 1st floor, and near the front door

 

The wife is pretty much handling it - I'm just along for the ride.

 

The same thing in Nanjing. It's almost impossible to find available space in strong shopping districts, meaning the occupancy in those areas is close to 100%.

 

Good luck with your venture Randy.

Edited January 27, 2010 by ShaQuaNew (see edit history)

[Guest jin979]

better you just open your own store

[fineart]

better you just open your own store

That is right. Once your money is in others' hand, the money is not safe anymore. Hopefully you always have the control for that money---not to mean pessimistic.

 

Best wishes to you, Randy.

 

Gong Xi Fa Cai !