20 per cent Capital Gains Tax has Chinese property investors running

March 13, 2013 admin China 7

Last Monday, we briefly reported on new regulations being introduced by the Chinese Government to help curb rampant property speculation and help put a lid on China’s property bubble. The shock move created jitters in world stock markets, including wiping approximately $21 billion from Australia’s resource lead bourse.

The Chinese Central Government has made repeated attempts over the past two years to rein in property speculation, but house prices have recently showed signs of moving in the wrong direction. As a result, on the 1st of March, the Government introduced further measures including the re-introduction of a 20 per cent capital gains tax, but failed to provide any dates for when the tax will come into play. This uncertainty has property investors flooding real estate offices in a bid to sell their empty investment properties before the capital gains tax comes into effect.

The Shanghai Daily reported Deovolente researcher, Lu Qilin saying “The latest announcement by the central government to implement a 20-percent capital gains tax on existing home transactions has had an immediate impact on the local market.”

Forbes reports on data from the Beijing Municipal Commission saying 9,400 homes were sold in Beijing last week, up 279.5% from the same time last year. Existing home sales have tripled last week in Beijing.

It is still earily days and it is unclear what longer term effect these new measures will have on the Chinese property market and what this will mean for Australia. Many Chinese investors purchase brand new homes as a place to park their wealth. They do not rent these premises out for fear tenants cause wear and tear, hence devaluing the property. In August 2010 we reported on data showing 64.5 million urban electricity meters recorded zero electricity consumption over a 6 month period indicating empty apartments suitable for housing over 200 million Chinese. This followed a report earlier that year from China Reality Research suggesting almost a fifth of all recently sold apartments were kept vacant.

If a capital gains tax frees up these empty homes for first home buyers, then it could be expected the sales of new homes and apartments, built using some of Australian resources to come under significant pressure.

» Selling Frenzy In China As Gov’t Slams Housing Bubble With Tax Hike – Forbes, 12th March 2013.
» Planned tax revives housing transactions – The Shanghai Daily, 13th March 2013.




7 Comments

  1. I wonder how many years of supply China has in empty apartments? They might not have to build anything for a decade.

  2. @Peter

    Chinese Government wouldn’t dare to announce this data to the public, it will be chaos. they say there are around 4m empty apartments in Beijing (not even been rented). you can imagine the total number in the whole country.

    also, because of the single child policy. the proportion of older people is increasing significantly fast the following years. in China, when people get old, they move into their children’s apartment. which means, FOUR parents moving into ONE couple’s apartment. guess how many apartments will be becoming empty then.

    so, i say. no need to build anything for TWO decade.

    i used to joke around saying, when WWIII comes, China will won. because it has unlimited supply of steels from forest of buildings.

  3. DX: Five decades seem more appropriate for the estimation. Just compare the empty apartments with the excessive roads, bridges and government buildings across the country, you could get better understanding the excessive fixed asset investment are so much correlated to the properties.
    It is true the population is getting old fast without being wealthy or healthy.
    Despite the fact that the average life for an apartment in China is around 22 years, the shrinking demand and aging population would not pop up the property marketat all.

  4. @ Admin – Sorry for posting off topic, but this article throughout the Fairfax group yesterday, makes me think of the Claytons non-alcoholic drink from the 80’s slogan, and any glimmer of property market upswing now – ‘the property recovery you are having, when you are not having a property recovery’ ! (I am sure budding advertisment writers out ther could do better, but hopefully you all get what I am saying !)

  6. Skichaser, please do not link readers to that disgusting face any more. I have got enough with that shameless liar from RP Data exposing himself excessively through public media. Thanks

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