Jason Hsu (l) and Pamela Lin of Heqi

GoKunming sat down recently with Jason Hsu and Pamela Lin of Heqi Serviced Office Provider to discuss where Kunming's residential and commercial property markets have come from and where they're headed. Taiwan natives Hsu and Lin have been investing in Kunming residential and commercial property for thirteen years.

[Disclosure: Heqi is an advertiser on GoKunming]

GK: What is the biggest change you have seen in the Kunming property market in the last 13 years?

Pamela: In the last few years the biggest changes in Kunming's property market have been the rise in demand and the commercialization of property. In the mid nineties, the market was virtually stagnant, most property was allocated by state-owned companies to their employees. Interior design and home decoration were also rather outdated - most properties weren't of the quality that the average foreign investor would want to buy. In the wake of social and economic advances, things have gotten a lot better in terms of the ability to buy and sell property, but the market itself has become more diverse in terms of selection.

Jason: The market has certainly changed a lot, with more diversity in terms of available properties and an increasingly sophisticated pool of property buyers because the market's direction is increasingly clear. In the last decade plus, the lack of certainty regarding the city's smaller districts has gradually improved. In terms of residential property, let's think of Kunming as two large plots of land, one north and one south. People that were born and raised in Kunming have more of an affinity to Dianchi Lake than other and therefore tend to buy land in the south of the city. The northern part of the city is where the 1999 World Horticultural Expo was held, which brought with it better planning and infrastructure than found elsewhere in the city. This is one major reason why the northern part of the city has been more appealing to people from outside of Kunming. In the wake of the expansion of Kunming's urban districts and the city's rise as an international transport hub in southwestern China, the east of Kunming is gradually becoming a storage and transport district.

Another factor that has had a major impact on the property market here is the family automobile. Before small automobiles started to grow in popularity, downtown Kunming was the preferred place for real estate investment. But in the last few years, as low prices for smaller cars have enabled most middle-class families to become car owners and the air downtown has become dirtier from the growing number of vehicles in the city, more people are choosing to move to the outside of the city in search of a cleaner life. This has led to the growing number of higher-end residential developments with private lawns and gardens such as villas and townhouses in the Dianchi Lake and Expo Garden areas. Right now the local property market's direction is demand-driven.

GK: What sector of the Kunming property market has the most potential?

Pamela: I still think property values in the city's center are increasing in value faster than other areas of the city. At the end of the day, it's easier to get around and it's a much more dynamic commercial environment.

Jason: I definitely agree with Pamela's view on downtown Kunming. Aside from downtown commercial property, I think there's significant room for a rise in the value of properties in several lesser-populated residential developments outside of the Second Ring Road, especially in the vicinity of the Dianchi Lu and Expo Garden areas. This is primarily because they are greener than downtown Kunming and have convenient traffic as well as more comprehensive infrastructure. Furthermore, current government policies are discouraging large-scale villas of 90 square meters or more as well as villas on larger tracts of land. With this scarcity and growing market demand, there should be plenty of room for larger-area properties to increase in value.

GK: For residential property in Kunming, which area(s) of the city are most suitable for foreign investment? Why?

Pamela: As far as foreigners are concerned, the north central and south central portions of the city are suitable, there's no need to look in Kunming's eastern or western areas.

In my view, the north of the city is the best for living. In terms of Kunming's future development the south of the city is where government workers and employees of state-owned enterprises will be increasingly concentrated, but there is still some variety in terms of property projects in the south. The main drawback in the south is that most of the newer developments are rather isolated, making getting around a chore.

The north of the city was developed later than other parts of the city, so many of the roads are newer and more thought-out than roads in other areas. In the north, the residential areas are all connected, part of the reason that the area has developed in a more integrated and comprehensive way. Commercially, the area is also thriving.

Environmentally speaking there's little difference between the north and south, but with the plant coverage of the Golden Palace [Jin Dian] and the World Horticultural Expo Gardens being quite good, the air is better in the north.

Jason: As far as foreign investment in Kunming is concerned, residents of Hong Kong and Taiwan as well as overseas Chinese from Southeast Asia constitute the majority of outside investment and have concentrated their investments in the north and south of the city.

Aside from the reasons Pamela already mentioned, Kunming International Academy's location in the south of the city is one of the reasons that many foreigners consider living in the south. On the other hand, I believe the presence of Richland International Hospital in the north will not go unnoticed by foreigners concerned about medical care as well as more successful locals. Because of this, the north of Kunming possesses a high investment value.

GK: What factors do you think will be driving Kunming's development over the next five years?

Pamela: In general terms, Kunming has significant potential across the board. Kunming is situated perfectly to serve as the primary gateway between China and Southeast Asia, as well as China and South Asia. The highway and rail links between Kunming and Southeast Asia and river transport via the Mekong are already serving as important factors in the city's development today.

Yunnan's natural resources are also abundant, making the province suitable to a wide spectrum of businesses, yet foreign investors are still relatively few. For a variety of reasons, levels of foreign investment in Yunnan should steadily rise, which will also have a major impact on Kunming.

Jason: As a provincial capital and southwest Chinese gateway, Kunming definitely has a lot of room for growth. Poor transport infrastructure once hampered Yunnan's development - the recent national strategy to increase fixed asset investment, particularly in the areas of air transport and highways have increased China's internal connectivity, making Kunming's good location even more important. Because of the potential convenience of transport that Kunming offers, the city could experience unprecedented development.

Another important factor is government policy, which is a source of concern for some. However, by selecting Wang Wentao from Shanghai as mayor of Kunming, the government is showing a determination to get local government more in line with national goals. This indicates a desire on the behalf of the government to get rid of some outmoded ways of thinking.

GK: What are the major challenges for property investment in Kunming?

Pamela: As I see it, the biggest challenge in Kunming property is making sure the property's surroundings are what you're looking for. The Kunming property market has been growing rapidly over the last two years. Looking at the situation today, Kunming's property market is full of investors who haven't thought everything through because the market is doing well.

Before investing, we make our clients understand the area surrounding the property - the environment, the traffic infrastructure, the population demographics. These factors are crucial as they will affect the rate at which the property's value increases.

GK: Is it necessary to live in Kunming to own property here?

Jason: Most foreign professionals in Kunming tend to rent, very few of the foreigners here are here for several years or more. Some that understand Kunming and want to live in their own space that they create for themselves consider buying property. Kunming has a lot of real estate agencies, but they're focused on the local market and don't fully understand what foreigners are looking for, leading to a lot of frustration on the part of the investor. I've been in Kunming for more than a decade and have primarily rented and have gone through the hassle of trying to find good residential properties.

We started our company because there was no one providing the type or quality of service required by foreigners who are new to Kunming. We want to reduce the pain in finding the right property. We've also started addressing other property needs foreign individuals and companies face when entering the city by offering instant office and interior design services.

GK: What standard advice do you give anybody looking to invest in Kunming property?

Jason: My main advice for foreigners interested in investing in the Kunming property market is: One, don't invest in forward delivery housing - buying property before it's finished or even begun to be built - the price may be a little cheaper, but the risk is much higher. Two, make sure the area surrounding the property you're considering has all the amenities and infrastructure you're looking for. Three, make sure you invest in a property that is managed by a reputable company. Lastly, consider investing in areas with a higher concentration of foreigners as it is easier to rent out properties in these areas.

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