China
Last Updated:
Jun 07, 2010
With the global economy recovering, China’s economy and housing market continue to surge. Property prices in Shanghai were up by an average of 9.8% y-o-y to April 2010, according to real estate website Ehomeday.com. Official government statistics show that real estate prices in 70 cities rose 12.8% during the same period, according to state information agency Xinghua.
As expected, the government tries to intervene in the housing market, attempting to rein in property speculation by raising taxes, increasing bureaucratic processes, restricting ownership and tightening loan requirements. In April, it:
• Increased down payment for second homes from at least 40% to 50%;
• Raised mortgage rates on second homes to 110% of benchmark rates; and
• Suspended mortgage loans to non-local residents who cannot prove at least one year of tax payments or social security contributions.
Another set of regulations is expected to be issued this month as indicators show continued strong house price growth and rising sales. The government is mulling imposing property taxes on certain residential housing.
It seems China’s housing market has already reached a point at which mere regulations are no longer enough to prevent house price increases. China’s economy is one of the fastest growing in the world. Companies are raking in huge profits from exports. All this money has to go somewhere; a huge chunk is obviously spent on housing.
Cracking down on speculators is not easy for a country with a population twice that of Europe. China’s corruption-ridden bureaucracy is also incapable of prosecuting speculators and investors with strong links to the Communist Party. New regulations simply make speculators move to other areas, shift to another industry or increase bribes to regulators. And the cycle continues.
As expected, the government tries to intervene in the housing market, attempting to rein in property speculation by raising taxes, increasing bureaucratic processes, restricting ownership and tightening loan requirements. In April, it:
• Increased down payment for second homes from at least 40% to 50%;
• Raised mortgage rates on second homes to 110% of benchmark rates; and
• Suspended mortgage loans to non-local residents who cannot prove at least one year of tax payments or social security contributions.
Another set of regulations is expected to be issued this month as indicators show continued strong house price growth and rising sales. The government is mulling imposing property taxes on certain residential housing.
It seems China’s housing market has already reached a point at which mere regulations are no longer enough to prevent house price increases. China’s economy is one of the fastest growing in the world. Companies are raking in huge profits from exports. All this money has to go somewhere; a huge chunk is obviously spent on housing.Cracking down on speculators is not easy for a country with a population twice that of Europe. China’s corruption-ridden bureaucracy is also incapable of prosecuting speculators and investors with strong links to the Communist Party. New regulations simply make speculators move to other areas, shift to another industry or increase bribes to regulators. And the cycle continues.
Analysis of China Residential Property Market »
RENTAL YIELDS
Last Updated: Feb 18, 2010
What a difference five years makes! 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%.
Today, gross rental yields on almost all sizes of apartments in Beijing are below 3%, and in Shanghai the situation is broadly the same.
We find the official statistics in China confusing. And as it happens, our own data-gathering in China has been rather inconsistent. We’ve relied on high-end expat-oriented sites some years, and on lower-end Chinese-language sites in other years.
But it is hard to escape the fact that prices have been climbing steeply, while rents have not moved much.
Yields below 3% are a danger signal. We have been 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 has rental yields above 5%, a level which we generally consider ‘safe’.
However we believe that yields of less than 3% indicate danger, in China as anywhere else. 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. With the market-cooling steps taken by the authorities, we think investment in Chinese property would be very unwise at this stage.
Today, gross rental yields on almost all sizes of apartments in Beijing are below 3%, and in Shanghai the situation is broadly the same.
We find the official statistics in China confusing. And as it happens, our own data-gathering in China has been rather inconsistent. We’ve relied on high-end expat-oriented sites some years, and on lower-end Chinese-language sites in other years.
But it is hard to escape the fact that prices have been climbing steeply, while rents have not moved much.
Yields below 3% are a danger signal. We have been 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 has rental yields above 5%, a level which we generally consider ‘safe’.
However we believe that yields of less than 3% indicate danger, in China as anywhere else. 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. With the market-cooling steps taken by the authorities, we think investment in Chinese property would be very unwise at this stage.
TAXES AND COSTS
Last Updated: Dec 10, 2008
Effective Tax Rate on Rental Income |
|||
| Monthly Income | US$1,500 | US$6,000 | US$12,000 |
| Tax Rate | 5% | 5% | 5% |
| Click here to see a worked example | |||
Source: |
Disclaimer | ||
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%.
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%.
BUYING GUIDE
Last Updated: Nov 16, 2006
Total round-trip transaction costs are around 4.86% to 13.65% of the property value. Most of the costs are shouldered by the buyer, including the 3% - 5% Deed Tax and Business Tax of 5%. There are three procedures needed to register property which is usually completed in 32 days.
LANDLORD AND TENANT
Last Updated: Jun 19, 2006
The 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.
ECONOMIC GROWTH
Last Updated: Jun 07, 2010
Growth slows due to exports
China, once called the Sleeping Giant, is one of the world’s fastest growing economy. With 1.3 billion people, it is the most populous nation and the second biggest in land area. Its economy, currently among the biggest in the world, is expected to overtake that of the US within a decade. China saw economic reforms under Deng Xiaoping after more than two decades of stagnation under the authoritarian rule of Mao Zedong. In the early 1980s, collective farming was dismantled and private enterprises were allowed to flourish.
Growth in the Chinese economy slowed to 9% in 2008 after posting a record 13% GDP growth in 2007. Prior to the global financial crisis, growth in the economy was slowing due to the tight monetary policies implemented by the government.Due to the drop in foreign demand, growth in Chinese exports slowed to 17% in 2008, according to NBSC. Growth in imports also slowed to 18%, due to the falling consumer confidence and uncertainties in the economy. To support the export industry, the government has been keeping exchange rates stable at CNY6.83 per dollar from July 2008 to August 2009. Foreign exchange reserves grew by 18.7% to US$2.13 trillion in June 2009 from a year earlier.
