Real Estate Trading Centre in Shanghai – Sell, Sell, Sell!
I imagine everyone has had quite enough of sunny beach posts, so it’s time to get back to what I do best – report on the weird and wonderful world that is life in China!
The government is forever playing a cat and mouse game to try and control the property market in China. Prices have been spiraling upwards as wealthy Chinese buy up property as a way of storing their wealth. It is not uncommon for people to have 20 or so properties. Shanghainese landlords love to boast about how many properties they own as I found out when I was looking for a place to rent.
Similar scenes at the Nanjing Municipal Real Estate Trading Centre
And it’s these multi-property owners that the government wants to penalise with its measures like the newly introduced sales tax on second properties. Basically, profit on sales of second properties will soon be liable for a 20% tax. This has had an interesting impact on the market as people scramble to dump their properties before the tax takes effect. But a surprising side effect is the rise in divorces. Why? Because couples with say, two properties are getting divorced, so that they can put one property in each of their names, to avoid the sales tax. They can then sell one property as a sole property, before getting remarried. Genius!
This phenomenon happened a few years earlier too, when the government introduced a rule that meant you needed to pay a higher down payment on additional property purchases. So while you might pay a 30% deposit for a first property, 50% would be required on a second property and 100% on a third property purchase. So some couples were getting divorced so that they could buy a second property but only pay 30% down payment instead of having to pay a 50% deposit on a joint second property.
Who says romance is dead!
Very interesting! Who said chinese are not clever?
Btw, 5 more days to . . . C A T U R D A Y ! ! !
@JR – Yes indeed, for every rule the government thinks up, the people will find a way to circumvent it. It’s like when the Beijing government decided to control traffic by alternately banning odd and even numbered registration plates on certain days. Solution : people bought two cars, one even and one odd numbered.
And yes, only 5 days to go!
Actually not every couple gets remarried. There were stories years ago that some guy took this opportunity to get rid of his wife without a hitch, then “legalized” his mistress. Poor woman!
I think that issue here is not so much that people are finding a way around the laws (people will do this in every country in the world) but that people here are convinced that putting all your savings into property is the best thing to do.
To me, it shows me that the price of property will continue to rise, at least in the short term. But with the amount of empty properties around, and the fact that affording even the most basic of apartments is getting out of reach of first-time buyers, the bubble has to burst soon. Is it really the safe investment that people think that it is?
@Flutter-by – I’m not entirely surprised, it’s always a risk. Apparently one of the women getting divorced to save tax was pregnant. I hope she’s not making a big mistake!
@Stimpy – You’re right of course. The Sunday Times money section is full of advice about how to minimise tax payments to save money. To be very honest, for me, this is an issue for the government. They should make provisions for this. I actually think they should allow two properties for couples even if it is extravagant because the real target of these controls are the filthy rich people with 20 or more apartments.
On the bubble issue, my view has changed. I don’t think it will ever burst because demand for property is only going to rise as more and more people move in to the middle class.
It’s not so much the people believe property is the best investment, but in China, it is simply a case that there are very few other alternatives available.
I totally agree about that lack of alternative investiment opportunities. That was really what my point was getting at- it seems as though it is the only option open to people.
But regarding the bubble. Yes, more and more people will be entering the ‘middle-classes’. The problem is that the cost of a starter-home for these people is raising much higher than their earnings; it is becoming out of reach for the majority of first time buyers. Unless you have wealthy parents or a government job, its a stretch for most people to buy at the moment. I would be interested to see if things go the same way as it went in the UK, in that people were borrowing far more than they could afford from banks.
It’s not that the cost of property is rising (as it will always rise, a little) but that it is raising far too quickly.