China to tighten foreign property ownership laws

Back on board the China property market rollercoaster as we ride into 2011. Before the last stop we watch a sub-index of property stocks on the Shanghai Composite Index slump 28% at the end of last year on the promise of new property taxes to curb growth. Now as it seems unlikely the taxes will ever come to bear, despite revelations that prices grew much faster last year than previously thought, we can watch the same index climbing once again having growth 8.4% last week.

The government has unveiled its latest policy initiative to cool the market; tightening regulations on foreign purchases. Last year we see that foreigners invested 20.1 billion USD in Chinese property, a whopping 48% growth compared to 2009, but a drop in the 410 billion USD ocean of total property investment in China.

It does seem like the rollercoaster is a bit unstoppable at the moment. The central government may want to cool the market, but provincial governments rely on land sales for revenues, the state owned banks are fuelling growth on financing loans for property and land purchases, and state owned developers are buying up land as well.

Passing any law to hurt the market does look difficult, especially because no one wants to cop the blame for bursting what looks like one of the largest real estate bubbles the world has ever seen. So, who cares if it gets harder for a few foreigners to buy if it takes some of the pressure out of the market?

You guessed it, the government. Right now no government in the world wants to hinder foreign investment, even China as the next wave of emerging markets — the CIVETS, Columbia, Indonesia, Vietnam, Egypt, Turkey and South Africa — take over from the BRIC nations as the fastest growing economies in the world. Because of this, it is just as likely that next to nothing will Change in the laws regarding foreign purchases, leaving the status quo rollercoaster to rock and roll onwards. Meanwhile we sit here wondering just how hot the Chinese property market is, biting our nails at the prospect it is likely much bigger than the US bubble that’s going pop crippled the global economy.

All that is true, the bubble is bigger, in fact according to recent reports the market is much hotter than we ever thought. According to the China Real-Estate Index System, compiled by China’s largest online real-estate brokerage SouFun, prices for residential properties rose 47.1% in Hangzhou, 37.9% in Chongqing and 37.1% in Beijing. Official figures from China’s National Bureau of Statistics show prices up less than 10% in these cities in the first 11 months of the year.

Source: Overseas Property Mall