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Last Updated: Dec 28, 2016




China's home prices continue to skyrocket, though in recent months growth has slowed due to tighter restraints by city governments.

The House Price Index of 100 Chinese cities of the China Index Academy rose 18.7% y-o-y in November 2016 to an average of CNY 12,938 (US$ 1,871.34) per square metre (sq. m.), a slight increase from 18.21% y-o-y growth the previous month. Prices rose in 75 of the 100 cities, y-o-y.

Yet the month-on-month (m-o-m) figures suggest a slowdown. The Index had a m-o-m price hike of 0.88% in November 2016, a slowdown from October's m-o-m price increase of 1.65%.

In Shanghai, the second-hand house price index rose by 27.82% y-o-y (24.66% inflation-adjusted) in October 2016,, a sharp rise from the 8.31% (6.99% inflation-adjusted) y-o-y price increase in October last year, based on figures from Ehomeday.  However prices were up by only 0.88% during the latest month, to CNY 45,847 (US$ 6,631.26) per sq. m.

Colliers International produced similar figures for Shanghai:
  • New houses saw an average sales price increase of 27.8% y-o-y to CNY 40,912 (US$ 5,917.46) per sq. m. in Q3 2016, according to Colliers. The area between the middle ring road and the outer ring road saw the biggest increase in house prices.
  • Villa sale prices slowed by 0.8% y-o-y to CNY 34,426 (US$ 4,979.34) per sq. m. It was down by 2.6% on a quarterly basis.
  • Apartment sale prices rose by 34.1% y-o-y to CNY 42,435 (US$ 6,137.75) per sq. m., also up by 19.4% q-o-q.

Shanghai's high-end market has an average sales price of CNY 69,401 (US$ 10,038.08) per sq. m., up by 15.9% from a year earlier. The city's low- to mid-end properties have an average sales price of CNY 25,637 (US$ 3,708.11) per sq. m., 12.9% higher than the previous year, according to Colliers.

In Beijing, the average price of new commodity houses was up by 23.5% during the year to August 2016, according to the National Bureau of Statistics of China.

In Guangzhou, the average sale price of new houses in nine districts rose by 15.9% y-o-y to CNY 20,716 (US$ 2,996.34) per sq. m., according to the Guangzhou Municipal Land Resources and Housing Administrative Bureau. The average sales price of houses in the urban districts rose by 11.6% y-o-y to CNY 26,883 (US$ 3,888.33) per sq. m., while in suburban districts, prices were up by 10.6% y-o-y to an average of CNY 14,189 (US$ 2,052.28) per sq. m.

In Shenzhen, the average sales price of new houses was at CNY 58,660 (US$ 8,484.52) per sq. m., a 65% increase during the year to Q3 2016, according to Colliers International. Although prices sharply rose on an annual basis, the average price was actually up by only 3.9% q-o-q during the latest quarter.

Rules on who can purchase property
There is no private ownership of land in China. One can only obtain rights to use land. A land lease of up to 70 years is usually granted for residential purposes.

China house prices graphForeigners who have worked or studied in China for at least a year are allowed to buy a home. Foreigners go through supervision procedures which last about a week, before they are allowed to buy properties in designated areas.

Foreigners cannot be landlords. Property ownership for investment by foreign companies and individuals is prohibited. Chinese living overseas and residents of Hong Kong and Macau are exempt from these restrictions.

Analysis of China Residential Property Market »


RENTAL YIELDS
Last Updated: Mar 23, 2016



When we first began to gather data on China, gross rental yields in all categories of Beijing condominiums were above 9%, and gross rental yields for villas in Beijing ranged from 9.5% to 13%. In Shanghai, returns were less stellar, with gross rental yields on apartments ranging from 5.4% to 7%.

Last year, we found that rental yields on almost all sizes of apartments in Beijing were below 2.5%, and in Shanghai below 3.2%. It is hard to escape the fact that prices have been climbing steeply, while rents have not moved much.

This year, we've found it difficult to collect data, hence the rather disappointing table above. But we have no reason to believe that yields have changed much.

Yields below 3% are a danger signal. We were reluctant to join the chorus warning about a bubble in China in previous years, for the good reason that in 2008, apartments in most large cities in China had rental yields above 5%, a level which we generally consider ‘safe’.

However the year before last we declared that, with that yields of less than 3%, the danger signals were flashing red. We were the first to warn that a crash was likely in the Baltics, and then, our signal was that yields dropped below 3%. We gave similar warnings in Dubai.

So that year we gave the same warning about China – and we believe we were right. It’s not been a exactly a crash, but for sure the period of market ebullience is over. The authorities are in a very difficult situation, and it is hard to know what they will do. But many Chinese property investors are voting with their wallets, and buying properties elsewhere.

Read Rental Yields  »



TAXES AND COSTS
Last Updated: Oct 17, 2013



Rental Income: In general, leasing property is subject to business tax, individual income tax, and real estate tax. In Shanghai, gross rental income is taxed at an integrated rate of 5%.

Capital Gains: Net gains from transfer of property are taxed at a flat rate of 20%.

Inheritance: There is no inheritance or gift tax in China.

Residents: Rental income earned by resident individuals is taxed at a rate of 10%.

Read Taxes and Costs  »



BUYING GUIDE
Last Updated: Oct 16, 2013



Total round-trip transaction costs are around 4.10% to 7.10% of the property value. Most of the costs are shouldered by the buyer, including the 3% Deed Tax.

Read Buying Guide  »



LANDLORD AND TENANT
Last Updated: Jun 19, 2006



China luxury houses for saleThe Chinese system is generally pro-landlord.

Rent: There is no rent control in major centers such as Beijing, Shanghai, Guangzhou, and Shenzhen. Rent adjustments are subject to the provisions of the contract.

Guaranty Money: The landlord typically collects guarantee money (security deposit) of two to three months rent on top of a month's advance payment. If the tenant prematurely terminates the contract, he loses the guarantee money and down payment.

Read Landlord and Tenant  »



ECONOMIC GROWTH
Last Updated: Dec 28, 2016


China's economy remains strong; rising concerns on property prices and private debt

China GDP growth

In Q3 2016, China's GDP expanded by 6.7% y-o-y, the same as the level of y-o-y growth recorded in the past two quarters. The country's economic growth during the third quarter was supported by a 10.5% y-o-y acceleration of retail sales and a 6.1% y-o-y rise in industrial output. Fixed-asset investment rose by 8.2% during the first nine months of 2016. Most investment gains came from state firms, increasing by 21.1%, while private investment remained weak, expanding by only 2.5% in the first nine months of 2016.

"Despite continued disappointing growth in the rest of the world economy, China’s economy is on track to achieve the government’s indicative growth targets for the year," according to Bert Hofman, World Bank director for China, Mongolia and Korea.

From an average growth rate of 12.7% annually from 2005 to 2007, China has experienced a slowdown in recent years, with an average annual real GDP growth rate of 9.6% from 2008 to 2011.

In November 2013 China unveiled a 60-point reform plan to pave the way for China’s transition to consumption-driven growth.  The plan includes boosting China’s urban population by easing the one-child policy.

Between June and August 2015, China’s stock market went into a meltdown, wiping out hundreds of billions of dollars in market capitalization. Triggering the crash was a relaxing of margin trades and concern over lofty valuations.

In August 11, 2015, PBOC devalued the yuan by 1.87% against the U.S. dollar, in a bid to boost the competitiveness of Chinese exports. The following day, the central bank devalued the yuan by another 1.62% against the U.S. dollar. Aside from shifting its market mechanism for setting the exchange rate in August 2015, the country also introduced a new exchange rate index valuing yuan against 13 trade-weighted currencies in December 2015.

While the country's mortgage market remains small (almost 19% of GDP in 2015), and its household debt ratio (around 67.5% in Q3 2016) is still lower than advanced economies such as the US (almost 80% of GDP) and Australia (125% of GDP), analysts raised concerns regarding the rapid pace of household debt increase amidst the soaring property prices. There are fears that a sudden decline in house prices might turn a lot of new loans into bad debts, causing a negative spillover to the banking system and the economy at large.

"The recent recovery is ultimately on borrowed time, given that it has been driven in large part by faster credit growth and a property market boom," according to Capital Economics' Julian Evans-Pritchard.

According to the government think-tank Chinese Academy of Social Sciences (CASS), China's total debt has reached CNY 168.48 trillion (US$ 25 trillion) or at around 249% of GDP. The country's non-financial corporate sector has a debt-to-GDP ratio of 156%, which could prompt "systematic risks" in China's economy, according to CASS senior researcher Li Yang. "The gravity of China’s non-financial corporate debt is that if problems occur with it, China’s financial system will have problems immediately," Li stated.

China's annual consumer inflation rose by 2.3% in November 2016, up from 2.1% in October, based on the figures from the National Bureau of Statistics of China. Urban unemployment slightly eased to 4.04% in Q3 2016, from 4.05% in the second quarter. During the first nine months of 2016, around 10.67 million new jobs were created in China, exceeding the annual target of 10 million, according to the Ministry of Human Resources and Social Security.







  • Fastest growing economy
  • Pro-landlord rental market
  • Uncertainty over rules and laws
  • Property rights issues
  • Aliens cant be landlords
  • Yields now very low
  • Government is determined to slow the market
RESIDENTIAL PROPERTY FACTS
Price (sq.m): n.a. For a 120 sq. m. property, usually an apartment.
Rental Yield: n.a. For a 120 sq. m. property, usually an apartment.
Rent/month: $2,483 For a 120 sq. m. property.
Income Tax: 5.00% Assumptions: Owners are a non-resident couple drawing US$ / €1,500 per month in rent, with no other local income.
Roundtrip Cost: 5.35% The total cost of buying and then reselling an apartment. Includes:

* all transaction taxes and charges:
* lawyers' and notaries' fees
* agents' fees

Assumptions: The buyers are non-resident foreigners. The apartment cost US$250,00 / €250,000.
Cap Gains Tax: 20.00% Assumptions: The property was bought for US$250,000 / €250,000, and sold 10 years later, after a 100% appreciation.
Landlord and Tenant Law: Pro-Landlord Rating is based on a detailed study of each country’s law and practice.

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