Chinese citizens have been barred from using their debit and credit cards to buy property in Hong Kong in the latest attempt by Beijing to curb capital flight.
UnionPay, China’s sole clearing house for bank card transactions, told property agents in the city that customers would no longer be allowed to swipe their cards for real estate transactions.
“It is strictly prohibited to use a UnionPay card issued in Mainland China for cross-border acquisition of property”, UnionPay said on Friday.
The crackdown by the state-controlled company comes as regulators grow anxious over the level of China’s foreign exchange reserves, which in January dipped below $3tn for the first time in five years.
With depletion in the forex reserves, Beijing has attempted to block channels for capital flight, such as speculative offshore corporate acquisitions, or purchases of high-priced insurance products, also with UnionPay cards.
To the surprise of analysts, reserves increased by $6.9bn to reach $3.01tn at the end of February, suggesting that curbs to capital outflows were working.
The use of Chinese credit cards to pay for a portion of property transactions is widespread in Hong Kong. Willy Liu, chief executive of local real estate agent Ricacorp, said 15-20 per cent of new property buyers were mainland Chinese. The majority use UnionPay cards to pay for 5 per cent of the home price as a mortgage deposit in Hong Kong.
Most of those transactions are worth at least HK$500,000 ($64,371), Mr Liu said, surpassing the $50,000 annual limit for personal foreign exchange imposed by China’s regulators.
Although Hong Kong is home to some of the world’s most expensive real estate — fuelled by mainland Chinese investment — it is unlikely that the UnionPay move would have an effect the city’s home prices, said Wong Leung-sing, a senior researcher at estate agent Centaline. “There are many ways for mainland investors to buy properties here,” he said.
UnionPay cards have been a common conduit for mainland Chinese to move cash offshore, and the company has sought to shutter those channels. In October, it said it had barred the use of its credit and debit cards to purchase investment-linked insurance products.
The group said it had “observed a significant increase in overseas insurance transactions by cards issued from mainland China”, and that it would stop the purchase of investment-linked products in Hong Kong on a trial basis.
Investment-linked insurance products often have a cash value that allows customers to cash out after a set period. The business was viewed by Chinese regulators as a means of moving money offshore.
The insurance policies bought by Chinese customers last year were much larger than those bought by other customers. Average single-paid premiums for life and investment-linked policies bought by Chinese were HK$3.7m-HK$6.1m ($477,000-$786,000), Moody’s said in a report this year.
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