‘Common Prosperity’ is encouraging Chinese property investors to look abroad

Last month, China’s President Xi Jinping announced a new policy that’s shaping up to be one of the world’s most ambitious initiatives against income inequality. Dubbed “Common Prosperity,” the campaign seeks to end China’s yawning income gap through wealth distribution policies involving education, training, and urbanisation.

Despite years of breakneck economic growth, China’s Gini-coefficient (a measure of income inequality) widened to 70.4 in 2020 from 59.9 in 2000, the Wall Street Journal reports. For context, a figure above 50 signifies high inequality while 100 denotes full inequality.

In the weeks that followed, the Chinese government enacted drastic regulations requiring local companies to strengthen supervision and audits, resulting in the country’s share prices losing US$1 trillion in value. The programme has rocked many industries and led to crackdowns on sectors like technology, gaming, online insurance, and private education among others.

What does ‘Common Prosperity’ mean for property investors?

The Common Prosperity drive will make changes to real estate taxation, with Xi calling on lawmakers to advance legislation to create a long-awaited national property tax. If passed, this would impose a tax on homeowners in first- and second-tier cities with hot real estate markets.

The drive also allows the government to take swift action against corporate giants like Alibaba, which accepted a record fine of US$2.8 billion for anti-monopoly violations. The company was also forced to cancel its IPO in Q4 2020—a clear signal to businesses in the country not to abuse their position.

Naturally, these developments have caused confusion for property investors who don’t fully understand Chinese regulatory practices or find it difficult to interpret the impetus behind Common Prosperity. But amid the Evergrande liquidity crisis, one thing is clear: Common Prosperity is a reminder for investors to do their due diligence.

A correction for the housing bubble?

In a country where homeownership has long been considered a hallmark of status and wealth, the Common Prosperity campaign could also represent a much-needed correction for the housing market—part of what historian Adam Tooze calls a controlled demolition of the real estate bubble.

Real estate prices in China’s major cities are some of the most expensive in the world, propped up by a decentralised system of government where local governments control most of the nation’s spending. Case in point: Land sales accounted for 30.8% of revenue for local governments in 2020.

Chinese banks have loaned the real estate industry 50 trillion RMB (US$7.82 trillion), or 28% of all loans in China—more than any other industry. Of that figure, 35.7 trillion RMB (US$5.58 trillion) were mortgage loans to households and 12.4 trillion RMB (US$1.94 trillion) were allocated to property development. The current state of the nation’s real estate market now represents the biggest threat to China’s economic stability, prompting calls to push through with a residential property tax on second homes and high-priced luxury investments.

China’s central government has long mulled a tax on homeownership. In 2011, the megacities of Shanghai and Chongqing were chosen to experiment with property taxes on second or luxury homes. Despite plenty of discussions about a nationwide tax scheme in the years that followed, there has been little progress.

But the Common Prosperity campaign, alongside fears of the Evergrande crisis representing a Lehman Brothers-type situation for China’s economy, could finally be the watershed moment for a property tax.

What’s next for Chinese property investors?

In light of the Common Prosperity drive and local housing market woes, we believe that Chinese investors will look to expand their overseas investment portfolio. Real estate will be a key focus of these foreign investments.

Even if COVID-19 tempered their investment appetite, Chinese investors are still the world’s largest cross-border buying group. In the US, Chinese investors are reportedly surging back in, riding on optimism of the new Biden administration and relaxed visa rules. And despite political tensions with Australia, local estate agents report fielding a growing number of queries from Chinese citizens with Australian residency who are waiting for borders to open.

Southeast Asia is another hot market for Chinese investors.

With its stable laws and outstanding response to COVID-19, Singapore is seeing a growing number of Chinese nationals buying property. Meanwhile, Thailand is wooing foreign property investors to settle down in the country after the pandemic with perks like longer-term leases and tax remittances.

In any case, property developers that wish to attract Chinese investors should plan around their buying behaviours. For starters, it’s important to tap digital solutions to help potential buyers make informed purchase decisions. While this is par for the course with any modern investor, Chinese Internet users flock to specific digital platforms, like WeChat (微信 Wēixìn), which counts more than 1.2 billion users.

Chinese buyers are also more likely to use digital tools and services, such as live streaming and virtual viewings. For instance, a reputable home listing site in China, reports having 5,000 virtual tours viewed in July this year alone.

Chinese buying habits revolve around thorough research—perhaps more so than other buyer groups. This makes it important to build trust-based relationships and avoid hard selling.

The best course of action is to provide as much information as possible about your listings to help potential buyers. PropertyGuru China Solutions offers developers the ease and simplicity of building a brand zone for Chinese investors through content and video marketing. More importantly, we’ll make sure your content is visible in places Chinese buyers frequent, whether it’s WeChat or Chinese digital platforms like Anjuke, Youku, iQiyi, and Douyin.

With PropertyGuru China Solutions, you can demystify the Chinese investor market and reach out to buyers via ABC—Agent acquisition, Brand engagement and Consumer acquisition.

We’ll provide you with domain expertise and consumer insights to keep up with trends and optimise your marketing efforts for the Chinese investor landscape.

Connect with us at [email protected] for more information