The State Council in early April dispatched inspection teams to 16 provincial regions, including Beijing and Shanghai, to check up on the implementation of central government policies to curb rising home prices.
Those teams will primarily be focusing on the draconian measures introduced since early 2010 to rein in speculative purchases by Chinese citizens. But their attention may also turn to the haphazard enforcement of regulations specifically targeting residential home purchases by foreigners.
Despite the central government’s determination to clamp down on the real estate market, local authorities have so far enforced regulations with varying degrees of strictness.
Helen Chang, director of residential sales at Savills Beijing, said that despite rules that restrict foreigners from buying homes as an investment vehicle, the agency still sees foreign owners renting out their property. She also noted that there is a discrepancy in law enforcement in the capital, depending on whether buyers are Westerners or hail from Hong Kong, Taiwan or Singapore – traditionally the primary source of foreign interest in mainland real estate.
This has been seen, for example, with measures that only allow foreigners who have lived in China for more than one year to buy property.
“It’s easier and more flexible for overseas Chinese, as the authorities don’t take the one-year residency requirement as seriously,” Chang said. “For Westerners, it’s not that easy.”
Kung Si Wei, who operates a property agency under her own name that targets foreign buyers in Shanghai, also said that contrary to regulations, some foreign buyers still rent out the homes they purchase in the city.
“While foreigners should live in the homes they buy, quite a high proportion of buyers still lease their properties,” she said. Kung added that it is also possible to circumnavigate the rule that limits buyers to one property by placing deeds in the name of children or relatives.
However, in Chengdu, which has experienced some of the most explosive house price growth of any Chinese city, real estate agents say the regulations are enforced to the letter. “There are plenty of foreigners who want to buy here, but they can’t, even if they do intend to use the property for personal use,” said Jacky Tsai, head of Colliers International’s sales office in the city. “You can’t even sell pre-sale to foreigners, so if you want to invest, you have to come in as part of a wider investment project.”
Those who do manage to secure a home for investment should be aware of the troubles they may encounter when it comes to getting money out of China.
Savills’ Chang described the case of one client who sold her property to an individual from Taiwan, before realizing she could not remit the funds gleaned from the sale. “We applied to the State Administration of Foreign Exchange, but the currency control bureau wouldn’t handle it, as there were no locals involved in the transaction,” Chang said.
That chimes with views offered by one leading wealth management consultant in Suzhou, who declined to be named, as he is the de facto owner of two properties in the city.
He said that while banks will help move renminbi out of the country, such aid is subject to exorbitant charges of about 7% of the transaction cost since it involves skipping the US$10,000 annual limit on foreign remittance.
Irrespective of whether it is possible to side-step the one-year residency requirement, the consultant also said he would not recommend Western clients enter the market without a Chinese partner and the ability to monitor homes on a regular basis. This is because property rights can be removed very easily without the help of sound legal backing.
“Unless you have family or strong ties to the community, don’t do it,” he said.
Take note: Property regulations
While the rule was first introduced in 2006, the government reiterated measures restricting foreigners to the purchase of one apartment in mainland China in November 2010. Foreigners are also required to provide additional materials during the purchase, including statements showing that they do not own other properties and proof of at least one year’s employment.
The residence must be for self-use; in other words, it cannot be left vacant or leased out unless the local housing authority grants the owner special permission. All first-time buyers must pay a 30% down payment if the property exceeds 90 square meters.
The annual amount of foreign currency an individual is allowed to bring into the country is US$50,000; anything beyond that requires approval from the State Administration of Foreign Exchange (SAFE). However, banks handling transaction on the buyer’s behalf can often apply to SAFE to convert the entire sum.
In most major cities, the property must be owned for about 3-5 years before being sold on again. Banks can hold proceeds and apply to SAFE in order to buy dollars and the funds can be remitted in one go. This is a lengthy procedure, taking over three months to complete.
Transaction costs vary but can include: 0.05% stamp duty, 1-3% deed tax (depending on property’s location and size) and 2% maintenance tax. If the purchase is made in Shanghai or Chongqing, the buyer will need to pay a property tax of 0.4%-0.6% and 0.5%-1.2%, respectively.