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Tax related change could spur Chinese overseas property demand – here's how

Effective from 1 July 2017, China will adopt the OECD’s Common Reporting Standard (CRS).Many experts believe the change will encourage wealthy Chinese to invest more in international real estate.¹

Developed in response to a G20 request, the CRS’s objective is to protect the integrity of the international tax system by combating cross-border tax evasion.¹

This means that from tomorrow onwards, China’s authorities will now have access to detailed information about Chinese residents’ non-real estate international investments, including bank deposits, securities, insurance plans, and financial assets held through trusts.²

This is a big change. Wealthy Chinese investors are taking notice. Many are choosing to move their assets into overseas property holdings. That’s because real estate holdings in certain locations are exempt from the reporting standards imposed by the CRS.¹

This is worth noting, because China is now home to 1.6 million high net worth individuals (HNWIs) population – an astonishing ninefold increase from 10 years ago – according to the latest China Private Wealth Report 2017 by Bain & Co. and China Merchants Bank (CMB).^{3, 4}

More importantly, these 1.6 million Chinese HNWIs are sitting on estimated wealth of Â¥165 trillion ($24.2 trillion).³ Once the new tax rules kick in, they are likely to want to find investments for that money that will expose them to the smallest possible tax bill.⁵

While the tax benefits of property in this case may strike a chord with some Chinese investors, this doesn’t, however, impact those Chinese buyers who are primarily interested in property for their own use or for immigration purposes for example. Many of these consumers have offshore bank accounts already, access to mortgages, or family and friend networks in which they leverage in country.

CRS propels Chinese buyers towards the world

Hong Kong is one of the first markets to experience a surge in Chinese demand for apartments and houses because of the new tax rules.¹

Hong Kong home prices have risen rapidly over the past few months, with data from JLL showing that housing prices are now 75.9% higher than the market peak of 1997. The Association of Hong Kong Accountants says this price rise is due to rich Chinese investors looking for assets that won’t be subject to the new tax rules. Chinese investors are even willing to pay Hong Kong’s 30% foreign buyer stamp duty if it will help them avoid paying higher taxes on their holdings in the years to come.¹

Agents and developers in other countries tell us that Hong Kong isn’t alone. Property marketers around the world are seeing more buyer interest due to the new rules.

Chinese buyers looking abroad

Once the new rules come into effect, Chinese investors are likely to be even keener to move their assets into property. That creates a huge opportunity for real estate marketers to sell to increasingly global-minded rich Chinese, especially those 1.6 million HNWIs.³

Non-financial assets such as houses are left out of the new tax rules.⁶

With the new tax regulations helping to drive deal flow, now is the time to make your play for this highly lucrative market. Here are 3 pointers to help you start:

• Get online: Online listings offer an efficient, targeted way of accessing China’s colossal online market of 731 million internet users save yourself the cost and hassle of setting up China operations by using online channels to penetrate the market.
   
• Build detailed listings: Quality content makes all the difference, so be sure to go the extra mile with your listings and offerings, such as providing extensive photo galleries, video tours, local area benefits descriptions, as well as market trend information and updates.
   
• Present paths to citizenship: Emigration stands as one of the biggest motivations for Chinese to invest in overseas property, so be sure to provide details of paths to citizenship in your local markets, plus details of local emigration agencies and government offices.

Still, there’s much more to consider when building your profile to attract Chinese investors, so be sure to read up our other tips to help you how to market better to Chinese by leveraging social media, understanding the challenges Chinese face when investing abroad.

Sources: 1. SCMP: Chinese money floods into Hong Kong property, as Beijing set to check taxpayers’ foreign financial accounts; 2. SCMP: China’s tax authorities to begin financial data collection on foreign residents from January; 3. Bain & Co and China Merchants Bank: China Private Wealth Report 2017; 4. Asian Private Banker: China’s HNW population reaches nearly 1.6 million: report; 5. SCMP: China’s private wealth surges to 165 trillion yuan; 6. Global Times: New account checks to start