Tighter Housing Market Regulations Threaten Property Investment In China

Buy sell Property & Real Estate Investment Guide

Buying Property Tips#1: Choose the Right Location
Before you choose a location, it is of utmost importance that you consider the development prospect of the area. Other factors to consider here is crime record of the area, availability and nearness of public facilities and utilities.
Buying Property Tips#2: Study the Local Market Dynamics
It is important to get well familiar with the local realty market. Learn the variation in property prices by street. Don’t shy away from asking a few realty investment agents questions to get better insight on the matter.

China's government announced on March 1 that intends to apply more strictly the existing 20 percent capital gains tax on home sales in an attempt to tighten restrictions on home buying and property investment and increase loan rates for those purchasing a second home in cities where demand is too high. The government hopes that the move will sedate the surging housing prices and help the nation evade a property bubble that could push the economy off track and breed social tensions.

A bubbly property sector has been one of the key characteristics of China's unbalanced growth. Rising house prices have led to high property investment levels but have crippled consumption by forcing households to save up more to afford a home. The planned tightening of controls suggests the government is willing to sacrifice some immediate economic growth in order to make homes more affordable to the middle class. In response to the announcement of tighter controls shares of Chinese developers plummeted on March 4 with the SSEP, a gauge of property-related stocks listed in Shanghai, falling 9.3 percent – its biggest daily drop since mid-June 2008. “The actual impact of the new policy can be very severe or not severe at all, depending on implementation. But the wording is unexpectedly harsh,' said Yao Wei, China economist at SocieteGenerale CIB. “In three months time, the impact may not be big at all. But it has stirred very high negative expectations.”

Buying Property Tips#3: Choose the Right Property
Getting the right property right away is quite unlikely. First, you need to be clear on why you want to buy an investment property. After that, you will be able to make right decision based on factors like remoteness or accessibility of the property.
Buying Property Tips#4: Do the Math Properly
Get a precise idea on the value of assets you have available. If you are investing in rental property, make sure you can easily cover the mortgage payment through rents. Additionally, get a clear idea on the appraisal value of the property beforehand.
Buying Property Tips#5: Consider Additional Expenses
When purchasing an investment property, it is not only the selling price that investors need to consider. There are various additional expenses such as property tax, home owner’s insurance, repair & maintenance that must be considered.

The outlook for China's real estate sector has serious implications for the commodities market and growth in the country as a whole. Property investment accounts for almost 14 percent of China's gross domestic product. According to Patrick Chovanek, Associate Professor of Practice at Tsinghua University's School of Economics and Management in Beijing, the biggest concern for the outlook in the sector is the heavy construction pipeline – a result of the building boom in recent years, which has led to the emergence of entire uninhabited townships, also known as “ghost towns”. “We would have to see consistently strong demand to absorb what's in the pipeline,” Chovanec told CNBC in a recent interview.

IHS Global Insight economist RenXianfengsaidthat a crash in China's housing market would be caused by two things: a severe slowdown in the economy and/or sharp deleveraging.

Buying Property Tips#6: Inspect the Property
To ensure that you are getting everything you are paying for, a thorough inspection of the property is essential. Besides ensuring that you are not overpaying, a rigorous property inspection also gives you a good estimation on what the additional expenses might be.
Buying Property Tips#7: Pick the Right Financing Option
While interests on investment property loans are tax free, some borrowing costs aren’t immediately tax deductible. Knowing that, and structuring your financing in accordance is crucial. Don’t hesitate to ask for help from a financial advisor.
Buying Property Tips#8: Invest through Equity
One of the best ways to purchase an investment property is to leverage the equity of another property (including your primary home). This is a preferable way among regular investors, especially due to added tax deduction advantages.
Updated: February 5, 2018 — 1:06 pm
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