China: Overview
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Massive Chinese housing boom nears end
China is currently experiencing a massive housing boom. Huge housing complexes with hundreds of thousands of new units have sprouted in or near major cities, intended for the rapidly rising middle class.
Adding to the boom, the entry of foreign developers from Singapore, Hong Kong, Taiwan, US and Europe has greatly increased housing supply. Because of this, the Chinese authorities have worried that an oversupply would lead to a crisis similar to the Asian Crisis in Hong Kong, Singapore and Indonesia.
China experienced the highest price rises in the world in 2007, with Shanghai prices surging by 34.5%. However at the beginning of 2008 signs of a slowdown began to emerge, with developers offering discounts.
Three years ago, the authorities had introduced anti-speculation measures, including a limitation on foreign ownership of investment properties. Generally, only foreigners who have worked or studied in China for at least a year are allowed to buy a home.
In addition foreigners cannot be landlords. Property ownership for investment by foreign companies and individuals are effectively prohibited. Exempted from these restrictions are Chinese living overseas and residents of Hong Kong and Macau.
RENTAL YIELDS
Last Updated: Feb 19, 2008
Moderate yields on China apartments
Yields on apartments in the five prime cities -- Beijing, Shanghai, Guangzhou, Shenzhen, and Chengdu -- is generally 5%.
Beijing apartments slightly earn more at an average of 5.5%. Prices are around $2,138 per sq. m. Shanghai apartments, on the other hand, are more expensive at $2,544 per sq. m, but earn lower rental income of around 5%. Guangzhou apartments have average yields of 5% as well, with much lower prices of aroun $1,485 per sq. m.
Chengdu apartments are cheapest among the five cities at $945 per sq. m. Average gross rental yield is still close to the other cities' at 4.43%.
Rental income on Shenzhen apartments are also 5%, selling for $1,354 per sq. m. Villas in Shenzhen, however, have much lower yields at 3.1%. These are quite expensive at $4,880 per sq. m, reaching up to around $3.4M for villas with 450 sq. m.
TAXES AND COSTS
Last Updated: Jun 22, 2007
Taxation differs in each municipality in China
Effective Tax Rate on Rental Income |
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| 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 |
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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%.
BUYING GUIDE
Last Updated: Nov 16, 2006
Buying costs are moderate in China
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
Chinese law is pro-landlord
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: Oct 18, 2007
Asia’s Rising Dragon
China is now an emerging dragon. It has the worlds fastest growing economy. With 1.3 billion people, it is the world's most populous nation, and has the second biggest land area. Its economy is expected to overtake that of the US within a decade. It is a military superpower with one of the worlds biggest standing armies, and a permanent seat on the UN Security Council.
After winning a war against nationalist forces, the Chinese Communist Party (CCP) established The Peoples Republic of China in 1949. The nationalists fled to Taiwan, and established The Republic of China. The CCP considers Taiwan a renegade province that must be reunited with the mainland, by force if necessary.
After stagnating for more than two decades under the strict authoritarian rule of Mao Zedong, China saw economic reforms under Deng Xiaoping. Deng rose to power in 1978, two years after Maos death. In the early 1980s collective farming was dismantled and private enterprises were allowed to flourish.
China is currently one of the worlds top exporters. It was admitted to the World Trade Organization (WTO) in 2004, and in return, must open its market to foreign competition.
Chinas economic growth for the past two decades has been impressive, averaging 9.4% p.a. Real GDP per capita rose 740% between 1980 and 2006, to about US$1,926. With careful steering of the economy, inflation was reduced to below 3% in 2005, down from 24% in 1994. The average inflation rate between 1997 and 2005 was below 1%, an incredible feat given China's breakneck growth.
However there are problems. The privatization of state enterprises has led to much unemployment. Inequality between rural and urban areas is widening. Pollution and economic degradation are also major concerns.
The biggest concern is the lack of political freedom. Economic liberalization has not been matched by political reform. The internet is censored, blogs are carefully monitored with dissidents are heavily prosecuted. Human rights abuses and corruption within the CCP are also widespread.
RESIDENTIAL PROPERTY AROUND THE WORLD
Asia & Pacific
China: Bubble fears prompt foreign ownership limits
America & Caribbean
Soft landing for Canada's housing market
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| RESIDENTIAL PROPERTY FACTS | |
| Price (sq.m): $2,697 For a 120 sq. m. property, usually an apartment. | Rental Yield: 4.36% For a 120 sq. m. property, usually an apartment. |
| Rent/month: $1,176 For a 120 sq. m. property. | Income Tax: 5.00% Assumptions: Owners are a non-resident couple drawing US$ / €1,500 per month in rent, with no other local income. |
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Roundtrip Cost:
5.3%
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: 4.7% Assumptions: The property was bought for US$250,000 / €250,000, and sold 10 years later, after a 100% appreciation. |
| Landlord & Tenant Law: Pro-Landlord Rating is based on a detailed study of each country’s law and practice. | |
APRIL 2008
- China property won't turn bearish in 08 according to a report - Reuters
- India and China housing markets on the bubble - NuWire Investor
- Developer works on a future for Beijing's high end housing market - IHT
- New rules for expats in China - IHT
MARCH 2008
- Chinese real estate feels power of brand (commentary) - Financial Times

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