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China OKs Pilot Launch of Property Tax
Chongqing Proposes Property Tax Reforms
Authorities of Chongqing and Shanghai municipalities announced Friday they would kick off the long-awaited trial property taxation, starting from Jan. 28, amid the latest measures to cool off the red-hot housing market.
This came on the heels of another round of tightening measures China's cabinet unveiled Wednesday, including higher down payment, home purchasing restrictions in more cities, and annual price control targets for newly-built homes.
China's real estate market remains overheated, even after a slew of tightening measures last year, including higher down payments, higher lending rates for second-home buyers and two hikes in the benchmark lending rates.
Chongqing will tax all villas as well as new apartments priced at least two times the average price of all newly-built homes in the southwestern city, said Chongqing mayor Huang Qifan.
The annual tax rates are 0.5 percent of the transaction prices for villas and apartments priced less than three times the average price, 1 percent for those priced three to four times the average and 1.2 percent for those priced more than four times the average, Huang said.
For a family, the first 180 square meters for villas and first 100 square meters for high-end apartments are exempted from tax, he told a press briefing.
For non-permanent residents who don't work and run companies in Chongqing, their second homes will be taxed at 0.5 percent regardless of the prices, he said.
The city may use the home evaluation prices as the tax bases in three to five years, Huang said.
The newly-bought second and second-plus homes of permanent residents in Shanghai will be taxed if the average floor area per family member of all homes, including the existing ones, is more than 60 square meters, the Shanghai Municipal government said in a statement.
Each family member will have 60 square meters exempted from tax, it said.
All new homes bought by non-permanent residents will be taxed, but the buyers can get all tax returned for their first new homes after they work in Shanghai for three years.
The tax rates are 0.6 percent for housing priced more than two times the average prices and 0.4 percent for those priced less.
The tax bases are 70 percent of the transaction prices now in the initial period and will later be the home evaluation prices, according to the statement.
The levy is designed to help regulate income distribution and promote social equality, and guide reasonable housing consumption for land saving and intensive use, the Ministry of Finance, the State Administration of Taxation and the Ministry of Housing and Urban-Rural Development said in a statement Thursday.
The tax is certain to help stabilize home prices in pilot cities by curbing speculation over the short term, said Yin Bocheng, director of the real estate research center at Fudan University.
A speculator surnamed Shen from the northeastern province of Heilongjiang said she will have to give up buying new homes in Chongqing, with bigger risks following tougher tightening measures and launch of property tax.
"The market prospect becomes uncertain," she said.
In response to the newly-announced tightening measures and the widely-anticipated property tax, the property shares on the Shanghai and Shenzhen bourses plunged 1.6 percent Thursday, compared with a 1.5 percent gain for the benchmark Shanghai Composite Index.
Many, however, believed the tax would not lead to sharp falls in home prices. Ren Zhiqiang, president of property developer Huayuan Group, said home prices are determined more by supply and demand, but demand in some major cities would not be met for another 10 years.
Also, Li Wei, chairman of Chongqing Doorlead Real Estate Co., said the tax levy on high-end homes in Chongqing would have limited impact on the whole housing market.
The tax is trivial compared with the accelerating urbanization, land supply and monetary policy, Li said. "It will have more of a psychological impact on the market. The massive low-cost housing construction will have a much larger impact, as it greatly boosts the supply."
Chongqing authorities have announced plans to build 40 million square meters of low-cost housing for rent in the years leading up to 2012 for 2 million low and middle-income residents.
All property tax revenue will be used for building low-cost housing, Huang said. But the tax levy is more nominal than substantial, he said.
Chongqing will collect 150 million yuan (22.8 million U.S. dollars) in property tax revenues this year, but the investment in low-cost housing amounted to 100 billion yuan, he said.
An Tifu, professor at Renmin University of China, however, believed the tax will eventually help to reduce local governments' reliance on land sales for revenues, which is widely blamed for their unwillingness to rein in rapid rises in housing prices.
Soaring prices are a major concern for urban Chinese with increasingly more finding homes unaffordable. Home prices in some major cities, such as Beijing, have more than doubled over the past two years due to easy credit and low lending rates.
