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China - New Rules For Residential Property Transactions By Individuals
December 2008 | China Practice | Regional | Regional Reports

In late October this year, the Chinese central government promulgated a series of rules to encourage residential property transactions by individuals. In short, the rules seek to relax the many restrictions on individuals engaging in housing transactions. In response to the general policies set by the central government, most local governments have also made corresponding local rules.

Clearly, the recent rules seek to stimulate the real estate market for ordinary housing by individuals, not corporations, but are still careful to control speculative behaviour.

The main changes are:

• a reduction of taxes and fees; and
• changes to housing loan policies.

The national and local governments have lowered taxes for residential property conveyances, but within limits. It must be stressed that the tax reductions are applicable only to individuals and are restricted to “Ordinary Residential Houses”. Under the national rules, “Ordinary Residential Houses” are houses which meet the following criteria:

• the plot ratio of the relevant residential block is above 1.0;
• the built up area of the house is under 120 square metres; and
• the actual transfer price shall not be higher than 1.2 times of the average transfer price of houses on land plots of the same class.

Interestingly, local provincial governments are at liberty to set specific criteria of “Ordinary Residential Houses” according to the actual local circumstances. While the requirements of built up area and price may be adjusted, such adjustments are restricted to an upper limit of 20% of the criteria under the national rules.

Further, the housing loan policies favour individuals who are first time purchasers of ordinary residential properties for self-use and individuals upgrading their homes by purchasing ordinary residential properties.