China: Working and Living
Buying and Renting Real Estate
It is likely that your employer will assist you to find an apartment, something that you will find extremely difficult if you are on your own, except perhaps in Beijing, Shanghai, and Guangzhou, where there are agencies serving the expat market. Of course, expat salaries are such that in most parts of China you can expect to be able to afford upper-level accommodation.
In Beijing many expats choose to live in one of a number of newly-built high-rise apartment blocks, some with pools and exercise facilities. There is no formal separation between the Chinese and foreign communities, but naturally they tend to cluster. The most popular district is Chaoyang, which has a metro and is home to many of the larger international firms.
Villas in gated communities in Shunyi, near the airport, are a popular choice for families with children, partly because there are two prominent international schools there, although the commute is a up to an hour at peak times.
As regards buying a property, the market has been very febrile in recent years, particularly in Shanghai, and the government has taken various steps to try to cool it down.
In December, 2009, the government reinstated a sales tax on homes sold within five years of purchase in order to control speculative activities in its urban real estate sector. In January 2009 when prices were falling and the economic crisis was at its bleakest point, the penalty period of the tax had been reduced from five years to two years. A government survey showed that home prices in 70 major Chinese cities had risen about 4% year on year in the previous month.
In the year as a whole, prices rose 10.7%, and in March, 2010, Premier Wen Jiabao said that the government would continue with cooling measures in order to prevent a real estate bubble.
"We will rein in speculative housing purchases by intensifying the implementation of differentiated credit and tax policies," Wen was quoted by China Daily as saying. "It is the government's responsibility to guide the property market. I am confident that the government will ensure the healthy development of the property market," he said.
In April, 2010, the Chinese Ministry of Housing and Urban-Rural Development (MOHURD) is reported to have approved a property tax trial in the four cities of Beijing, Shanghai, Shenzhen and Chongqing. Reports suggested that the tax rate would be 1.2% - 1.5% calculated on 70% of the purchase price of the property. MOHURD did not make an official comment, but a number of sources said that the measure still awaited the go-ahead from the Ministry of Finance and State Council.
Statistics published by the Chinese Ministry of Finance on land transfer payments in 2009 showed that revenues, at RMB1.424 trillion (USD208.5bn), were up 43.2% in the year; this fee income is the mainstay of revenues for local government in China.
Land transfer fees and administrative charges make up almost half the cost of a house, making local government a major beneficiary of China's real estate market boom. About two thirds of the income originated in the booming coastal provinces. Land acquisition and compensation for demolition accounted for 40.4% of the total, while urban construction and land development was 27.1% and 10.7% respectively.
The fees fell by 19.7% in the first half of 2009, the low point of the economic crisis, only to rise by 110.9% in the second half, a sign that fiscal stimulus measures were feeding the property boom. House prices in Beijing almost doubled in 2009.
In response to increasing unrest at the overheating of the property market, a statement was issued after the conclusion of an executive meeting of the State Council chaired by premier Wen Jiabao, in which it was stated that the Chinese government had raised the down payment required from second-home buyers to a minimum 50% of the value, up from 40%. The statement added that first-home buyers' downpayments would have to be at least 30% of the property price if the property is above 90 square meters in size. It also indicated that tax policies would be adjusted to "influence purchases and adjust property investment returns."
In May, it transpired that the proposed new tax could apply to owner-occupied as well as commercial properties. It also appeared that local government revenue shortfalls are the driving force behind the intitiative and not the overheated property market. Legal obstacles and a lack of consensus on the structure of the tax have been the main stumbling block.
As a totally new tax it would need approval from the National People’s Congress, a lengthy process, but a real estate tax based on an existing tax imposed under a temporary regulation may only require State Council approval. Existing land taxes need not be affected by the introduction of such a real estate tax.
Finally, in October, the MOF issued a statement advising that a property tax on the residential sector was necessary for the sound working of the property market, an equitable distribution of income and for restructuring of the economy.
The Ministry of Finance also announced that the contract tax on the purchase of sole residences would be halved as of October 1, and homes with an area of less than ninety square metres would have this tax reduced to 1%. At the same time there would no longer be relief of personal income tax on the capital gains from sale of owner occupied properties, where sale has taken place within one year.