Undoubtedly, one of the main barriers to make a decision in purchasing a property or doing business out of one’s own borders, especially if it is 6,000 kilometers away, is the lack of specific market knowledge and the potential risk that may cause. Not only in terms of the laws, but also due to the historical and cultural reasons, ways of doing things certainly vary from the ones in Chinese market.
Here we offer a short guide, not exhaustive but concise, in which aspects should be paid attention for investors when deciding to invest in cities like Paris, London or Barcelona:
1. The European market is much more mature than any Southeast Asian market. Consequently, do not expect returns in excess of 10% without any risk as the real estate in China. This will never happen in Europe or the United States. In exchange, you will receive a return almost without risk and a platform from which to access one of the main markets worldwide.
2. If you invest in business, bet on the investments that can be brought in to your country. Do not buy it to ruin the European market, but better to acquire the knowledge and European management systems in order to apply those to your own market. The combination of both factors will ensure you excellent returns.
3. Do not dream to buy what you wish in the home country, but have a look at the available projects of real estate or business in the country where you want to invest. Accept the rules of local market, as you assumed when someone is going to invest / buy from China, he also needs to follow the market rules.
4. Show your interest not only with words, but with actions (documents, etc). The investment world has been professionally developing for much longer time in Europe than in China (let alone in the United States), so there have been some tested methodologies for long which are based on operational and tested strict contractual terms. And these are followed strictly, regardless buyer’s country or origin.
5. Do not totally believe everything you read or rumored on the Internet nor in the press of one’s country, the information always tends to be biased or inaccurate. Look for a local operator and get advice from the organization perspective on the ground so as to have a clear and completely updated picture of the feasibility of operation related to legal, financial and fiscal risks issues.
6. Try to understand and explain the objectives to reliable local representatives in a way as much detailed as possible. Only then can you be sure that you have the most possible opportunities, which must always be aligned with its long-term strategy.
7. Do not rely on others too much, but also never think that everyone is cheating. The first attitude will make you lose a lot of money. With the latter one, undoubtedly, doing nothing will be far away from the expected investment return.
8. Find and compare, but set limits on the searching work. The perfect operation (high yield, no risk) does not exist, so you must decide, within a limited time or opportunity cost, on an investment project that may be far superior to any potential future benefits.
Yet, fulfilling all the above advices, remember that any purchase or investment, even in your own country, carries risk to some extent. The goal (yours and your advisers) must be to maximize the risk / return binomial. Thinking that there are investments with high returns without risk is not only a mistake but that is literally untrue.
European entrepreneurs and owners are eager to do business with international investors without judging their origin, given the maturity of the domestic market. But this does not mean that they are willing to give away their properties and businesses, also same for the investor / buyer does not give away his money.
Antonio Valverde Sanz
Head of Corporate Finance
AGM Abogados – Barcelona