According to some reports, some developers are now offering discounts of up to 35% on new properties. This has led to some discord as previous investors have paid much higher prices and have not been able to benefit from these new buyer discounts.

Some analysts have warned that property prices may drop by a massive 20pc over the next two years as current prices are unsustainable and unrealistic.

A decade ago, China’s property market started to boom after authorities privatised a large percentage of housing stock across the country. According to state media, in 2000 there were just 1,000 second-hand home sales in Beijing; last year saw well over 200,000 sales. As prices increased, many people saw property as a wise place to invest money and this pushed price and demand up even further.

However the writing has been on the wall for a while. Authorities took measures last year to try and cool the property market down by introducing things such as restricting the number of properties people could own and increasing the minimum downpayment required for property purchases. Partly, these measures were introduced to help ensure that housing was more affordable for more people – and to stop property investors adding to their already large portfolios.

These measures are now starting to take effect and many believe that property prices in China will now start to decrease to a more sustainable, affordable level.

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These announcements are in addition to those made in April and are aimed at bringing Chinese real estate prices down to more affordable levels.

Before the announcement, property purchasers had to raise a 20% deposit on new home loans, or 30% if the property was larger than 90 square metres. The new measure sees all properties now having to have a 30% deposit on new home loans. Mortgages for third properties are currently banned and banks must ensure that other loans are not being used to fund property purchases.

The Chinese Government’s new measures are not unexpected as reports showed that property prices were buoyant in August and September meaning the April measures had little effect on the Chinese property market.

Some analysts also believe that more changes to the property market rules may be in the pipeline – there is currently an annual tax on commercial properties although residential property is exempted. It is understood that some local authorities are in talks about possibly removing the exemption for some classes of residential property.

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The first choice of many property investors has to be China’s capital city Shanghai. Many multinational companies have already started locating their regional HQs in the area, and home to 21 million people, there are many different properties to choose from. Shanghai is also undergoing strong infrastructure and development improvements meaning it should be a strong place to invest in property.

Overseas property buyers are often shown the luxury, high-end properties in the city which sell for around $1.5 million. However this has a small rental market therefore it is advisable to seek out properties on a small budget, perhaps those around the $250,000 mark as this means that the property can be rented not just to tourists but also to locals.

There are plenty of styles of property to choose from in Shanghai – from old villas through to art-deco style buildings, so there is sure to be something there that catches every property investors eye.

Chinese Property Mortgages

When buying in China, it is advisable to factor in 10% costs for taxes and agents fees. Mortgages are generally only really found through Chinese banks. Mortgages tend to be for a maximum of 60% of the property price, on a repayment basis only. Make sure all your paperwork is in order as banks will scrutinise all your papers carefully.

Taxes on Chinese Properties

A 5% tax will be levied on gross rental income. A 5% tax is imposed on anyone who buys or sells within two years of purchase. You may also be liable for taxes in your home country.

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The Chinese government have vowed to help boost the property market’s growth rate back up again by investing in even more infrastructure projects including roads, airports, nuclear power plants and hydro-electric power stations. Taxes on residential properties purchases will also be lowered.

The outlook for Chinese real estate and property still looks fairly healthy with over 70 Chinese cities showing year on year increases, with new property prices showing an increase of around 4 percent compared with the same price this time last year. Several cities continue to shine with high property price growth – Haikou has seen a growth rate of 15 percent, Yinchuan 12.7 percent, and Yichang 10.3 percent.

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The government is looking to ban all foreign investors and non-permanent Chinese citizens from buying property and real estate in Shanghai, whilst simultaneously working on a new property purchase system for non-permanent residents, although it is understood that workers on temporary permits would be exempt from the restrictions.

Shanghai’s plans are a direct response to the State Council of China’s orders that local authorities must do more to try and help China’s low income families find affordable housing throughout the country. In a time where property prices in the country have rocketed, more and more families are finding that they are unable to get a foot on the ladder and many are welcoming the ban on foreign investors.

It isn’t the first time that foreign investors in Chinese property have found obstacles in their way – the SHLRB has recently introduced laws which restrict buyers of residential and commercial land to using only yuan in an attempt to remove many foreign speculators from the Chinese real estate market.

It is hoped that the moves will stabilize property prices in Shanghai, reduce property inflation, and allow more Chinese families to afford a house of their own – in the last 12 months, the average property price in the city has grown by 7.9%.

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Most investment has been in residential projects, accounting for nearly 3/4 of total monies spent. Industrial properties are still good investments, however they are growing at a much slower rate.

In an attempt to slow down the huge property boom, the Chinese government have been introducing new property laws, designed to impose restriction on multiple property ownership, especially for foreign investors. Any property that is bought without the objective of being lived in by the legal owner must have official approval before the sale can complete. For any project which will totaly more than $10 million to complete, foreign investors must now also have at least $5 million up front before the project starts.

Despite the new restrictions, China is still a good prospect for property investment although the days of getting a 20% growth on your investment each year are probably gone. Consider that of the ten richest people in China, at least half of them have real estate which helped get them where they are today.

Naturally, the big cities of Shanghai and Beijing are ever popular, but the countryside is also providing a good range of properties with new projects springing up at an speedy rate all over the country. with the costs of buying a new house too much for most of China’s nationals (the average wage is around $1,000 a year), rental income is set to be excellent, which means your investment should pay for itself easily.

The two areas in China hotly tipped for 2007 are Tianjin, the third largest city in China, and Chengdu, a town in the southwest of China and an important ecomonic hub. With the government keen to cool the prices down in Shanghai and Beijing, they may be more open to foreign investors in new cities.

One point to note is quality – if you are not intending to build your own property, it is worth checking the quality of the properties you are buying very carefully, even if they have been built by well-established companies. Many developments are put up in a rush and within five or six years, the paint fades and peels and the development may not look like such a good prospect. A little caution may save a lot of money in the future.

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