Chinese rush to pawn properties to buy more to beat end of year tax deadline
Property owners in Beijing are pawning their apartments as they attempt to secure quick cash to buy new properties to take advantage of a tax exemption policy due to end on December 31.
Pawnbrokers are reporting a huge increase in the number of property hunters offering apartments as collateral on short term loans at pawnshops because they can get their money faster than through the banks even though interest rates are much higher interest at between 3 to 3.2%.
One Peng Tao, property manager of Huaxia Pawnshop, said business had increased 50 % since the first of November compared to the same period last year. Peng said many buyers were using this money to buy new properties.
Currently under part of the Chinese government’s stimulus policies for the real estate market sales of property purchased within five years are exempt from a 5.5% transfer tax but this stops at the end of the year. From Jan 1, the tax will be re-imposed on sales of property within two years of the purchase date.
‘It has become common to see clients waiting in the office to pawn their properties. I have been to local construction committees about six times in the recent week to get approvals,’ Peng told the China Daily.
According to law, only people with full ownership of their properties can pawn them. Owners need to first get permission from the local construction committee.
The Bao Rui Tong Pawn Shop said his staff of 20 had been overwhelmed by the sharp increase of people wanting to offload their properties. ‘Some are going to check and investigate the properties and some are accompanying clients to local construction departments for registration procedures,’ a spokesman said.
‘There are so many people purchasing and selling their properties every day. Recently for the pawn registration, we have to wait at least two hours in a line of more than 100 people,’ he added.
A 45-year-old man surnamed Li, of Daxing district, said he pawned his 90 square meter apartment for 500,000 yuan ($73,226.81) to raise money to buy a bigger 130 square meter apartment. ‘If I can't raise enough money to buy this bigger apartment by the end of this year, I will need to pay an additional 71,500 yuan because of the transfer tax next year,' he explained. He described it as a reasonable strategy to dodge the tax.
According to the Beijing Pawn Trade Association (BPTA), real estate deals account for between 60 and 70% of the pawn business in the city. ‘People who urgently need money prefer pawn shops rather than banks because they can raise funds in only a few days, while the procedure for banks takes at least one month,’ said Guo Jinshan, president of the BPTA.
Although the short term interest rate of pawnshops is much higher than banks, which typically charge about 0.6%.