When someone shares with you something of value, you have an obligation to share it with others.
Monday 12 October 2009
Hot cash flowing in - but is it legal?
Mainland buyers are driving the prices of luxury properties to record highs, a process fuelled by millions of dollars pouring over the border through complex arrangements - some legal, some not.
Peggy Sito, Maria Chan and Chloe Lai in Guangzhou 11 October 2009
Mainland buyers are driving the prices of luxury properties to record highs, a process fuelled by millions of dollars pouring over the border through complex arrangements - some legal, some not.
The yuan is not freely convertible into foreign currency in the absence of approval by the State Administration of Foreign Exchange. And the central government maintains strict controls over individuals converting yuan into foreign currencies, including the Hong Kong dollar. But these limits are easily circumvented by mainlanders eager to buy expensive flats in the city.
Credit card transactions, fund transfers between companies that trade in Hong Kong and the mainland, parallel accounts, the underground banking system, and mobilising friends to smuggle currency - all are used to move money in search of investment opportunities.
Undoubtedly some of these methods breach the mainland’s strict foreign currency controls, but it’s not always clear.
Under Beijing’s individual visit scheme, which began in July 2003, residents are allowed to take no more than 20,000 yuan (HK$22,700) and foreign currency equivalent to US$5,000 in cash with them each time they visit Hong Kong. That comes to about HK$61,500.
In addition to the cash limit, they can also use mainland-issued bank cards to withdraw cash from ATMs in Hong Kong, but the equivalent of no more than 10,000 yuan a day. Moreover, on the mainland people are entitled to buy a maximum of US$50,000 per person per year.
Obviously such amounts are not much use when you need to come up with a down payment for a penthouse in Hong Kong.
And yet it’s being done.
“Presently mainland buyers account for around 10 per cent of total [property] transactions, said Shih Wing-ching, chairman of Centaline Holdings, which owns one of Hong Kong’s biggest estate agencies, Centaline Property Agency. “Most buy newly released properties of over 1,000 square feet, which sell at around HK$20 million.”
He said mainlanders normally settled the bill with a combination of credit cards and cheques in Hong Kong dollars.
“Many of these people have bank accounts in Hong Kong and hold savings in Hong Kong currency.”
For some mainlanders, that’s not a problem. Those who own trading companies in Hong Kong and the mainland can easily get foreign currency as part of their businesses, said Sharmaine Lau Yuen-yuen, chief economic analyst of mReferral.
According to mainland laws, the conversion of yuan to foreign currency for import payments is permitted, subject to certain conditions.
Some mainlanders can also get mortgages from Hong Kong banks by providing financial statements such as tax bills. But Lau said cash-rich mainland buyers generally do not prefer to arrange a lot of home loans to fund their purchases.
But there are other ways to raise foreign currency.
With a growing number of mainlanders arriving in the city under the individual visit scheme, Hong Kong banks have been happy to open bank accounts for them if they can provide a Hong Kong address.
“Mainland people find that a bank account in Hong Kong provides them with an easy way to get Hong Kong currency,” said an agent familiar with the situation.
“Step one: the mainland buyer opens a bank account in Hong Kong and his Hong Kong friend or partner opens an account in a mainland city.
“Step two: the mainland buyer makes a yuan deposit in his Hong Kong friend’s mainland account. At the same time, his Hong Kong friend puts the equivalent amount of Hong Kong dollars into the mainlander’s Hong Kong account.
“The deal between the two does not involve any money shifting across the border and it involves no middlemen. Plus, the mainlander gets the Hong Kong dollars to make his property purchase.”
Since business demand for yuan spending on the mainland has increased in recent years, the Hong Kong partner does not necessarily need to convert the yuan deposit made into his account into foreign currency, the agent said.
While such an arrangement is clearly in conflict with the spirit of foreign currency controls, it is not clear whether it is actually illegal.
Angela Lee, partner at law firm Baker & McKenzie, said foreign exchange controls were complicated and whether such a procedure was against the law had to be viewed on a case-by-case basis.
Some Hong Kong bankers confirmed this as a workable procedure, but the risk is whether each partner can be trusted to make the deposits.
An immigration consultant said a few smaller-sized foreign banks on the mainland also accepted big yuan deposits from mainland citizens and then allowed them to withdraw an equivalent sum through their Hong Kong branches.
Another option is underground banks or money changers.
A buyer might make a yuan deposit into an underground bank or money changer’s mainland account. The associates of the underground banks will put the same amount in Hong Kong dollars into the mainlander’s own account or in a designated account at bank branches.
“But in this case the underground currency banks pocket large commissions,” the agent said. “There are a number of popular money changers that offer this service in Shenzhen, and many buyers are happy to subvert the strict currency controls.”
The rapid growth in illegal currency transfers has been a concern for mainland authorities. The People’s Bank of China estimates that annual loans from unsupervised informal lending amounts to 950 billion yuan a year - about 7 per cent of GDP.
In 2006 Shenzhen authorities arrested a businesswoman, To Ling, whose money-exchange shop had handled more than 4.3 billion yuan in illicit money transfers between Shenzhen and Hong Kong from 2006 to May 2007. About 130 million yuan had entered the property market, and 105 million yuan had entered the capital market, China Central Television reported.
The arrest threw the spotlight on the extent of illegal currency flows. It also highlighted the difficulties that authorities had experienced in restraining investors who shift capital across the border, not just to buy property but to launder money, which is the bigger problem.
A spokesman for the Hong Kong Monetary Authority said: “Authorised institutions [AIs] in Hong Kong are required to observe the requirements set out in the prevention of money laundering guidelines issued by the Hong Kong Monetary Authority, in which AIs are asked to establish effective control systems to guard against money laundering.
“These include, among other things, the know-your-customer principle, record-keeping requirement controls to identify suspicious transactions, and reporting of suspicious transactions.”
To track suspicious transactions, banks use computer programs that register alerts when there are transactions that are out of the ordinary.
“We have set an alert system,” one local banker said. “If there are any clients who suddenly deposit a large amount of money or there is an unusual money deposit pattern, we will report to the money laundering task force unit.”
However, there is no established amount that triggers an alert.
Lee, at Baker & McKenzie, said: “We will alert the related parties if our clients bring a large amount of cash notes in front of us for property purchase, but most of the clients usually show us bank cheques.”
Shih of Centaline said: “Banks are the gate-keepers, since the money is supposed to be clean if the client withdraws the funds from a bank.”
He emphasised that estate agents do not attempt to subvert the regulations by accepting yuan payments for Hong Kong property purchases.
“We only accept Hong Kong currency,” he said. “We cannot sell Hong Kong properties on the mainland. So if a mainlander comes to our shop on the mainland and asks for assistance on buying properties in Hong Kong, we will give them the relevant phone numbers in Hong Kong. How they transfer their money to Hong Kong is not our business.”
One developer said they only accepted cheques issued by agents who are monitored by the Estate Agents Authority.
“The cheques must be in Hong Kong dollars and how the agents get the money from the mainland buyers is not our business,” said the developer, who did not want to be named. “But if you are a very important person who is preparing to spend plenty of money with us, we will help you deal with the money matters.”
Victor Lui Ting, an executive director of Sun Hung Kai Properties Real Estate Agency, a unit of Sun Hung Kai Properties, said: “Buyers do not need our help in financing, they can do it by themselves, but they do not want to talk about this.”
Lui said there were many lawful ways to transfer money across the border. If they had a business trading between Hong Kong and the mainland, it was easy for them to get foreign currency, he said.
Helena Li Jun is an example.
“In June, I bought a 1,000 square foot unit at Sorrento at Kowloon Station for about HK$15 million,” she said. “My down payment was about HK$7 million. How did I get it? I had businesses in Hong Kong and China. I prepared the foreign currency before the purchase.”
She used the purchase to apply for Hong Kong’s Capital Investment Entrant Scheme. Under this plan, the HK$6.5 million investment required from each applicant to obtain Hong Kong residency can go into real estate or financial assets.
Mainlanders are not normally eligible and first need to get a passport from a foreign country first before moving to Hong Kong, said Eddie Kwan King-hung, who operates an immigration consultancy firm.
Then they are allowed to transfer foreign currency if they can prove they are migrating abroad.
However, the mainlanders have to make sure all tax payments such as income tax and business tax have been settled before leaving the mainland. “None of my mainland clients will use this way to transfer money.”
Kwan said some of his clients used mainland-issued foreign currency credit cards to make a down payment. For credit cards, the maximum they can spend depends on the credit limit set by the card issuing banks.
Mainland bankers said those transactions did not involve foreign exchange purchase restrictions. The spending would be settled with the clients’ savings accounts on the mainland.
There are other options for transferring money: mobilising a number of people, with each person using his or her annual quota of US$50,000, or smuggling cash across the border.
“When I bought two units at Park Island in Ma Wan two years ago, I had to transfer a HK$1 million down payment,” said one woman in her late 20s who has worked for a Hong Kong financial institution for two years but who did not want to be named. “Apart from remitting the US$50,000 quota from the mainland to HK, we brought the money in cash across the border. The Customs Department never checks; it is quite loose. We changed the money into US currency - green notes. The pile of money notes will be thinner. They will not notice.”
4 comments:
Hot cash flowing in - but is it legal?
Yuan limits no barrier to property investors
Peggy Sito, Maria Chan and Chloe Lai in Guangzhou
11 October 2009
Mainland buyers are driving the prices of luxury properties to record highs, a process fuelled by millions of dollars pouring over the border through complex arrangements - some legal, some not.
The yuan is not freely convertible into foreign currency in the absence of approval by the State Administration of Foreign Exchange. And the central government maintains strict controls over individuals converting yuan into foreign currencies, including the Hong Kong dollar. But these limits are easily circumvented by mainlanders eager to buy expensive flats in the city.
Credit card transactions, fund transfers between companies that trade in Hong Kong and the mainland, parallel accounts, the underground banking system, and mobilising friends to smuggle currency - all are used to move money in search of investment opportunities.
Undoubtedly some of these methods breach the mainland’s strict foreign currency controls, but it’s not always clear.
Under Beijing’s individual visit scheme, which began in July 2003, residents are allowed to take no more than 20,000 yuan (HK$22,700) and foreign currency equivalent to US$5,000 in cash with them each time they visit Hong Kong. That comes to about HK$61,500.
In addition to the cash limit, they can also use mainland-issued bank cards to withdraw cash from ATMs in Hong Kong, but the equivalent of no more than 10,000 yuan a day. Moreover, on the mainland people are entitled to buy a maximum of US$50,000 per person per year.
Obviously such amounts are not much use when you need to come up with a down payment for a penthouse in Hong Kong.
And yet it’s being done.
“Presently mainland buyers account for around 10 per cent of total [property] transactions, said Shih Wing-ching, chairman of Centaline Holdings, which owns one of Hong Kong’s biggest estate agencies, Centaline Property Agency. “Most buy newly released properties of over 1,000 square feet, which sell at around HK$20 million.”
He said mainlanders normally settled the bill with a combination of credit cards and cheques in Hong Kong dollars.
“Many of these people have bank accounts in Hong Kong and hold savings in Hong Kong currency.”
For some mainlanders, that’s not a problem. Those who own trading companies in Hong Kong and the mainland can easily get foreign currency as part of their businesses, said Sharmaine Lau Yuen-yuen, chief economic analyst of mReferral.
According to mainland laws, the conversion of yuan to foreign currency for import payments is permitted, subject to certain conditions.
Some mainlanders can also get mortgages from Hong Kong banks by providing financial statements such as tax bills. But Lau said cash-rich mainland buyers generally do not prefer to arrange a lot of home loans to fund their purchases.
But there are other ways to raise foreign currency.
With a growing number of mainlanders arriving in the city under the individual visit scheme, Hong Kong banks have been happy to open bank accounts for them if they can provide a Hong Kong address.
“Mainland people find that a bank account in Hong Kong provides them with an easy way to get Hong Kong currency,” said an agent familiar with the situation.
“Step one: the mainland buyer opens a bank account in Hong Kong and his Hong Kong friend or partner opens an account in a mainland city.
“Step two: the mainland buyer makes a yuan deposit in his Hong Kong friend’s mainland account. At the same time, his Hong Kong friend puts the equivalent amount of Hong Kong dollars into the mainlander’s Hong Kong account.
“The deal between the two does not involve any money shifting across the border and it involves no middlemen. Plus, the mainlander gets the Hong Kong dollars to make his property purchase.”
Since business demand for yuan spending on the mainland has increased in recent years, the Hong Kong partner does not necessarily need to convert the yuan deposit made into his account into foreign currency, the agent said.
While such an arrangement is clearly in conflict with the spirit of foreign currency controls, it is not clear whether it is actually illegal.
Angela Lee, partner at law firm Baker & McKenzie, said foreign exchange controls were complicated and whether such a procedure was against the law had to be viewed on a case-by-case basis.
Some Hong Kong bankers confirmed this as a workable procedure, but the risk is whether each partner can be trusted to make the deposits.
An immigration consultant said a few smaller-sized foreign banks on the mainland also accepted big yuan deposits from mainland citizens and then allowed them to withdraw an equivalent sum through their Hong Kong branches.
Another option is underground banks or money changers.
A buyer might make a yuan deposit into an underground bank or money changer’s mainland account. The associates of the underground banks will put the same amount in Hong Kong dollars into the mainlander’s own account or in a designated account at bank branches.
“But in this case the underground currency banks pocket large commissions,” the agent said. “There are a number of popular money changers that offer this service in Shenzhen, and many buyers are happy to subvert the strict currency controls.”
The rapid growth in illegal currency transfers has been a concern for mainland authorities. The People’s Bank of China estimates that annual loans from unsupervised informal lending amounts to 950 billion yuan a year - about 7 per cent of GDP.
In 2006 Shenzhen authorities arrested a businesswoman, To Ling, whose money-exchange shop had handled more than 4.3 billion yuan in illicit money transfers between Shenzhen and Hong Kong from 2006 to May 2007. About 130 million yuan had entered the property market, and 105 million yuan had entered the capital market, China Central Television reported.
The arrest threw the spotlight on the extent of illegal currency flows. It also highlighted the difficulties that authorities had experienced in restraining investors who shift capital across the border, not just to buy property but to launder money, which is the bigger problem.
A spokesman for the Hong Kong Monetary Authority said: “Authorised institutions [AIs] in Hong Kong are required to observe the requirements set out in the prevention of money laundering guidelines issued by the Hong Kong Monetary Authority, in which AIs are asked to establish effective control systems to guard against money laundering.
“These include, among other things, the know-your-customer principle, record-keeping requirement controls to identify suspicious transactions, and reporting of suspicious transactions.”
To track suspicious transactions, banks use computer programs that register alerts when there are transactions that are out of the ordinary.
“We have set an alert system,” one local banker said. “If there are any clients who suddenly deposit a large amount of money or there is an unusual money deposit pattern, we will report to the money laundering task force unit.”
However, there is no established amount that triggers an alert.
Lee, at Baker & McKenzie, said: “We will alert the related parties if our clients bring a large amount of cash notes in front of us for property purchase, but most of the clients usually show us bank cheques.”
Shih of Centaline said: “Banks are the gate-keepers, since the money is supposed to be clean if the client withdraws the funds from a bank.”
He emphasised that estate agents do not attempt to subvert the regulations by accepting yuan payments for Hong Kong property purchases.
“We only accept Hong Kong currency,” he said. “We cannot sell Hong Kong properties on the mainland. So if a mainlander comes to our shop on the mainland and asks for assistance on buying properties in Hong Kong, we will give them the relevant phone numbers in Hong Kong. How they transfer their money to Hong Kong is not our business.”
One developer said they only accepted cheques issued by agents who are monitored by the Estate Agents Authority.
“The cheques must be in Hong Kong dollars and how the agents get the money from the mainland buyers is not our business,” said the developer, who did not want to be named. “But if you are a very important person who is preparing to spend plenty of money with us, we will help you deal with the money matters.”
Victor Lui Ting, an executive director of Sun Hung Kai Properties Real Estate Agency, a unit of Sun Hung Kai Properties, said: “Buyers do not need our help in financing, they can do it by themselves, but they do not want to talk about this.”
Lui said there were many lawful ways to transfer money across the border. If they had a business trading between Hong Kong and the mainland, it was easy for them to get foreign currency, he said.
Helena Li Jun is an example.
“In June, I bought a 1,000 square foot unit at Sorrento at Kowloon Station for about HK$15 million,” she said. “My down payment was about HK$7 million. How did I get it? I had businesses in Hong Kong and China. I prepared the foreign currency before the purchase.”
She used the purchase to apply for Hong Kong’s Capital Investment Entrant Scheme. Under this plan, the HK$6.5 million investment required from each applicant to obtain Hong Kong residency can go into real estate or financial assets.
Mainlanders are not normally eligible and first need to get a passport from a foreign country first before moving to Hong Kong, said Eddie Kwan King-hung, who operates an immigration consultancy firm.
Then they are allowed to transfer foreign currency if they can prove they are migrating abroad.
However, the mainlanders have to make sure all tax payments such as income tax and business tax have been settled before leaving the mainland. “None of my mainland clients will use this way to transfer money.”
Kwan said some of his clients used mainland-issued foreign currency credit cards to make a down payment. For credit cards, the maximum they can spend depends on the credit limit set by the card issuing banks.
Mainland bankers said those transactions did not involve foreign exchange purchase restrictions. The spending would be settled with the clients’ savings accounts on the mainland.
There are other options for transferring money: mobilising a number of people, with each person using his or her annual quota of US$50,000, or smuggling cash across the border.
“When I bought two units at Park Island in Ma Wan two years ago, I had to transfer a HK$1 million down payment,” said one woman in her late 20s who has worked for a Hong Kong financial institution for two years but who did not want to be named. “Apart from remitting the US$50,000 quota from the mainland to HK, we brought the money in cash across the border. The Customs Department never checks; it is quite loose. We changed the money into US currency - green notes. The pile of money notes will be thinner. They will not notice.”
Post a Comment