Dear All and GreenMonkey,
Please see the u/m news reported in the Singapore Business Times newspapers regarding faulty property titles and titles fraud related risks.
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Business Times - 01 Nov 2005
Investors in China face false title risk
But foreign firms say higher potential returns compensate for the extra risk
(HONG KONG) Investors in China should be wary of inaccurate property titles, analysts say, especially as funds and property companies hunt for Chinese buildings that could be sold to real estate investment trusts (Reits).
A private property market has been flourishing in China for a little over a decade since state firms stopped providing homes for their workers. The communist party enshrined the right to own private property in the constitution last year, and now the government is trying to bring order to the young market through land auctions.
But investors are encountering titles falsified by corrupt officials, or plots of land with competing land-use rights, and even titles nullified by courts after previous owners were found to have obtained the land fraudulently.
Untangling lease titles, called 'land use rights', after property has changed hands several times can be confusing. In some cases, authorities have confiscated property on the grounds that it was originally obtained corruptly, because the wrong government agency issued the title, or for fake documentation.
'It's more of a mystery than anything,' said Wit Solberg, head of Asia structured finance at Fitch Ratings.
'If there's been some fraudulent exchange with officials and someone shines the spotlight on it one day, what happens?'
Land title fraud is just one of the possible pitfalls property investors face in China, along with fast changing government policies on land and development, and courts that are often seen as arbitrary on issues such as foreclosure.
But with a booming economy and urbanisation promising big returns on apartments, offices and shops, many investors are undeterred despite the risks.
A survey of 180 banks and fund managers in Europe, Asia and North America, released last week by consultants DTZ, showed that China had overtaken Japan as the top destination in Asia for property investors.
Firms such as Singapore's CapitaLand Ltd and Australia's Macquarie Bank are eager to package Chinese buildings into Reits to meet the demand for tradeable securities based on property in China.
Insurers have lobbied regulators in Hong Kong, which is expected to be a major market for Chinese Reits, to make title insurance mandatory as it is in the United States.
But after consultations with property industry executives, Hong Kong's Securities and Futures Commission (SFC) decided not to change its Reit code, which stipulates that trusts should carry out thorough due diligence on titles.
'The general response that we received on this issue was that this requirement would be onerous and impracticable,' an SFC spokesman said. 'The costs might be prohibitive and the coverage of the insurance might be subject to various carve-outs.'
The cost of title insurance in China will probably be on a par with Eastern Europe, or about 0.35 per cent of the capital value of a building, compared with just 0.06 per cent in many cases in the United States.
Alison Cooke, Hong Kong representative for First American Title Insurance Co, said buyers of Chinese buildings face their greatest risk during a 'registration-gap period' when down-payments are made but new land-use certificates have not yet been issued. 'There is potential for fraud of the one-seller, two-buyers type during this period,' she said.
But foreign property companies that have operated in China since the early 1990s say the extra risks are part of doing business in the country, and higher potential returns compensate for the added risk.
'Definitely, the risk is there, but the question is, do you want to take it?' said Wen Kai Meng, chief executive of CapitaLand Financial Ltd, which structures deals for CapitaLand.
'By the time you insure everything away, you might as well stay in the United States.' - Reuters
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For your kind update, please.
Thank you.
regards,
Kenneth KOH
