China's "New" 20% Capital Gains Tax on Property Sales

To curb the rapidly rising real estate market, the new Chinese leaders recently announced that they will be enforcing the 20% capital gains tax on the sale of real estate. This means that for any property that is sold, there is a 20% tax on the profit from the sale. This tax is not new, but has not been enforced in past years. An individual's primary residence and those properties held for 5 years or more are currently exempt from this tax.

The goal is to curb speculation in the Chinese real estate market and avoid a housing bubble like the U.S., however, there have been a number of side effects from this measure:

1.  The measure has increased the sales volume of real estate in China. Those people who were previously on the fence about selling or buying have rushed to sell/buy their house before this new measure becomes effective.

2.  The measure will increase the price of used housing in China, because sellers will inevitably pass the tax onto buyers. However, the measure will help real estate developers, because new houses are not subject to such tax and new construction will become more competitive in the market.

3.  The measure has caused an unprecedented number of couples to file for divorce. Since each individual/family will have their primary residence exempt from the tax, couples are divorcing and putting one house under each person's name to "shield" 2 houses from the tax. However, there is a number of people that are advantage of this "fake" divorce tactics to really divorce their spouses. Many unsuspecting spouses were tricked into signing the divorce papers to later find that their spouse considered the divorce real.

Many are skeptical that this measure will last, but for now just buy a brand new house.