China: Is the Big Sell Underway?

March 13th, 2013
in econ_news, syndication

Updated: 13 March 2013 10:47 pm New York Time

Econintersect:  At the beginning of March the Chinese government announced the intention of making several changes in regulations involving residential shanghaipicturereal estate transactions.  Included in the coming changes are increased down payments and higher mortgage interest rates for second homes and the enforcement of a 20% tax on profits from selling a home.  Rumors of property tax increases are  frequent.  That has already been implemented on a trial basis is several cities.  The government is  trying to slow a a new boom in residential real estate.  An example of how the bubble has been growing:  The Wall Street Journal says prices are up 41% year-over-year in Shanghai.

Follow up:

Reports are mixed about the impact the government moves are having on the real estate market.

From the Shanghai Daily:

Real estate offices have been jammed by people anxious to sell their homes ahead of a 20 percent capital gains tax on profits from property sales.

From The Wall Street Journal:

The plan announced Friday calls for enforcing a 20% tax on profits from home sales as part of efforts to quell speculation driving up prices, among other measures. But some government advisers said Tuesday it might not push down prices in the near term and could even trigger increases.

"The measure will reduce the supply of home resales, and it certainly will push up prices," Li Qingyun, an economist who also advises the government as a state counselor, said Tuesday, speaking at the opening session of the National People's Congress, the annual parliament meeting, in Beijing.

Hong Kong is also seeing a frothy market with property values more than doubled in the past four years.  An article in CNN Money cites hundreds of thousands of dollars for a parking space, a remote hotel room for $424,000 and a 533 square foot section of a hotel roof for $113,000.  The roof is not a building site by law but it seems that someone is not deterred by that.

From what is in the press this week it is not clear exactly what will be the impact of the government announcements made on March 1.  One thing is clear there is a mad rush to buy and sell real estate.  Whether that is driven by buyers or sellers is not clear.  The bubble may be about to pop or a new push higher may be underway.  According to Shanghai Daily, the volume of sales in the past week is the highest in 36 weeks, but the sales prices appear to be significantly lower.

We will know what's happening after it's over.  In the meantime, according to The New York Times, some Chinese couples are reported to be divorcing in order to avoid the tax increase.

Added: 13 March 2013 10:47 pm New York Time

Gillem Tullock recently appeared on 60 Minutes review of China real estate.  Here he is being interviewed by Reuters:

Video is from Macro Business.


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