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An Overview of the Real Estate Market in China

The Chinese government began easing many restrictions to attract foreign investment for those interested in purchasing property as it continued trying to boost the economy. But for all its successes, the result soon became rampant speculation and a resultant fear of market instability. So in response, the Chinese government has imposed a succession of rules to make it more difficult for investors to capitalize on short term gains as well as to cool surging property prices—namely, raising the minimum down payment for larger apartments to 30% and more than doubling the period during which a property sales tax will apply; conversely, China’s property market has become more favorable for those seeking a more stable investment environment with increased potential for long term growth.

The latest round of government-imposed regulations are meant to reduce the amount large foreign property buyers can borrow by requiring them to provide at least 50% of the capital up front for investments of $10 million or more. The rules also limit apartment purchases to overseas nationals who actually live in China.

The new restrictions follow other measures aimed at cooling economic growth that the government worries could overheat.

For as much as the government has welcomed foreign investment and its attributable boosting to the country’s economy, it is now taking a serious stance to look after its own, as many Chinese have been priced out of the housing market from enthusiastic overseas investors. So the aim is to encourage long-term, controlled investment as opposed to short-term speculation that may ultimately upset the stability of the market. And anyone seeking quick-fix, short-term growth in the first place is likely to meet with disappointment anyway.

The government has proposed several strategies aimed at cooling the economy by way of curbing foreign investment. Basically, if you are a foreigner already living and working in China for a minimum of one year, you are permitted to buy one property for your own use. If you decide to sell your property within two years after purchase, you are liable for a 20% tax. So as we referred to earlier, new policies are being brought to the table designed to reduce rampant speculation practices and encourage long-term holding.

Ultimately, the moral of this story as it stands now is, if China appeals to you, if you’re a frequent traveler to the country and if you’ve ever had designs to relocate there for work, study or retirement, then you will have the opportunity to be a homeowner there. If you’re seeking to turn a tidy profit through the buying and selling of property, you’ll be discouraged. The best bet is to travel to China, see the sites, meet the people, and experience the culture first hand. We’ll start you on your way in our upcoming chapters. Laws change quickly in China and adaptations are made just as often, so who can say with great certainty what the property market will look like for foreigners in another year?

It is also worth pointing out that when it comes to owning real estate in China, foreign buyers are in fact protected by laws that state the government may not confiscate property without paying compensation at least equal to the current market value and allows for claims to be made against the Chinese government under certain conditions. Today, there is a greater degree of transparency for potential buyers and the regulations are less rigid. That said, there are still inherent risks that you should be wary of; specifically, the many of these on again off again measures that are employed in the surging markets of this country, which is effectively a work in progress, and particularly if you are attempting to go it alone.

Excerpted and adapted from the ebook “Discovering China: Making Your Way through the Middle Kingdom” by Vinnie Apicella.

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