China New Property Curbs

Beijing will soon issue rules to restrict property purchases by foreigners living in the mainland to cool speculation. The new policy would likely come in administrative orders, including strict systems on approval and registration. Government officials have previously said the new rules would include tax and administrative measures involving the Construction Ministry, taxation authority and foreign exchange regulator. The new measures may limit foreigners to buying only one or two homes for their own use and forbid them from selling them within a certain period of time. China previously encouraged foreigners to buy property as a means to attract foreign investment to help spur the economy, but a tide of money inflows has fueled housing speculation.

People from outside the mainland have been flocking in to buy expensive apartments or villas in fast-growing cities in an attempt to cash in on rising prices and to profit from the yuan's appreciation. Officials say recent steps to cool the sector are aimed at reining in speculation rather than choking demand from people buying their own homes. While the move to be introduced is "good", the real buying and speculation in China properties is by Hong Kongers. Beijing cannot alienate HKers by saying to them that they cannot buy more than one property in Beijing or Shanghai, so the next best thing is to stop the Taiwanese and Indonesians from speculating. China high end properties is a natural yuan denominated asset, and if you are looking at a 20% gain in the yuan over the next 24 months (very likely), your property will get a double whammy in returns.

What would have been better is to impose new rules such as a sliding property gains tax: 70% tax on gains if sold within the first 2 years; 50% tax if sold between 2-4 years; and normal tax rates if you had held it more than 4 years. That would certainly encourage genuine buyers only.