Thursday, 8 December 2011

Property tax scheme to cover more cities

Levy on home purchases will eventually replace restrictions on home-buying, finance official says

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Guanyu 道 said...

Property tax scheme to cover more cities

Levy on home purchases will eventually replace restrictions on home-buying, finance official says

Peggy Sito
08 December 2011

China’s central government will finalise plans to roll out new property taxes in other cities after evaluating the impact of a pilot programme in Chongqing and Shanghai, according to an official.

Gu Kang, director of the Ministry of Finance’s Fiscal Science Research Centre, said the overall direction of the property tax roll-out had already been decided.

In the long term, it would gradually replace existing home-buying restrictions designed to regulate property prices, Gu was quoted by the China Securities Journal as saying.

China has restrictions that limit the number of flats that can be purchased in 46 cities including Beijing, Shanghai and Guangzhou.

According to the China Real Estate Index System, home prices in 100 major cities last month recorded their biggest month-on-month decline this year, which was also the third consecutive fall. It said the drop was due to government tightening measures.

Gu said the time was not right to introduce a property tax across the entire country. Government officials would evaluate the effectiveness of the 12-month pilot scheme in Chongqing and Shanghai at the year’s end.

The central government has been toying with a property tax since 2003 and a pilot scheme was launched this year in Shanghai and Chongqing.

The Shanghai rate is fixed at 0.6 per cent, but is reduced to 0.4 per cent for housing bought for less than twice last year’s average for newly built private homes. Chongqing charges 0.5 per cent of the transaction price for villas and apartments that cost less than three times the average price. The property-tax rate for villas and apartments sold for between three and four times the average price is 1 per cent, and for those that cost more than four times the average, 1.2 per cent.

“This year, sales and prices of high-end properties in Chongqing and Shanghai showed signs of slowing, reflecting the positive impact from the launch of the property tax,” Gu said.

Home buyers have extended their search from downtown to fringe areas of Shanghai, which Gu attributed to the property tax.

Responding to criticism that the revenue raised by the pilot projects was too small to significantly impact local government finances, Gu said the success or failure of the project should not be judged on the basis of revenue, especially in the first year. As the tax system matured, more revenue would be received.

He said the scheme should be judged on how the tax, as an administrative tool, affected the property market and the overall economy.

The scheme is now set to expand, according to analysts.

“My guess is that China will introduce property taxes into some 10 to 20 cities next year. But the magnitude of the tax will not be substantial in the beginning,” said Lee Wee Liat, regional property head of research at Samsung Securities.

“Shenzhen, Beijing and Guangzhou are definitely on the list, followed by Hangzhou, Chengdu, Tianjin, Suzhou, Wuhan, Qingdao, etc.”

Between home-purchase restrictions and the new taxes, the property tax was definitely the lesser evil in terms of price corrections in the property market, Lee said.