Cities Move to Lift Home Sales Local authorities aim to shore up tax revenues amid slump
Peggy Sito 24 September 2008
Local authorities on the mainland are taking steps to boost property sales under their jurisdiction to shore up tax revenues, say analysts.
The moves are being made at the regional level in the absence of steps from the central government. Property sales contribute at least 30 per cent of city governments’ tax revenues, which are in danger of showing a sharp decrease, they say.
The latest local authority seeking to stimulate the market is Nanjing, which is expected to announce incentives such as cash subsidies and a reduction in deed tax (which is levied on the transfer of a real estate title) from 2 per cent of the transaction value to 1 per cent. Other measures being mooted include allowing homebuyers to borrow higher amounts from housing provident funds set up to provide low interest-rate home loans, according to sources familiar with the plans.
The Nanjing government was unavailable for comments but it was rumoured that the stimulus package would be announced on the National Day on October1.
Guangzhou officials also said the city government was studying measures to prevent further drastic falls in home prices.
“The rumoured stimulus package in Nanjing came after other city governments introduced measures to boost property sales,” said Wang Derong, an analyst at Citic Securities.
Changsha, Shenyang, Xiamen, Shenzhen and Shijiazhuang city governments had all launched different types of measures to boost their housing sectors, he said.
The Shenyang government had cut deed tax from 3 per cent to 1.5 per cent, while Xian government gave cash subsidies to buyers of private homes.
Most of the changes were launched this month after property sales continued to fall since the fourth quarter of last year. According to government figures, home sales across the nation fell more than 10 per cent to 277 million square metres in the first seven months of this year.
“Including land sales revenues and tax charged from sales of homes, income from the property market probably accounts for 30 to 50 per cent of each city’s total revenue,” Mr Wang said.
As such, shrinking property transaction volume would be acutely painful for local governments, he said.
However, analysts questioned the effectiveness of the measures unveiled so far and pointed out that buyer confidence in the sector was unlikely to be restored by small cuts in taxes.
Earlier this month, US investment bank Morgan Stanley warned the mainland residential market could be headed for a meltdown as home prices and sales continued to fall.
“Property prices are already cracking in major cities. We believe the likelihood of a property sector meltdown is high,” said Morgan Stanley analyst Jerry Lou.
Xavier Wong, the head of research at Knight Frank, also said the housing market had just entered a recessionary stage and was unlikely to rebound unless the central government took significant steps to boost demand by easing its austerity measures.
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Cities Move to Lift Home Sales
Local authorities aim to shore up tax revenues amid slump
Peggy Sito
24 September 2008
Local authorities on the mainland are taking steps to boost property sales under their jurisdiction to shore up tax revenues, say analysts.
The moves are being made at the regional level in the absence of steps from the central government. Property sales contribute at least 30 per cent of city governments’ tax revenues, which are in danger of showing a sharp decrease, they say.
The latest local authority seeking to stimulate the market is Nanjing, which is expected to announce incentives such as cash subsidies and a reduction in deed tax (which is levied on the transfer of a real estate title) from 2 per cent of the transaction value to 1 per cent. Other measures being mooted include allowing homebuyers to borrow higher amounts from housing provident funds set up to provide low interest-rate home loans, according to sources familiar with the plans.
The Nanjing government was unavailable for comments but it was rumoured that the stimulus package would be announced on the National Day on October1.
Guangzhou officials also said the city government was studying measures to prevent further drastic falls in home prices.
“The rumoured stimulus package in Nanjing came after other city governments introduced measures to boost property sales,” said Wang Derong, an analyst at Citic Securities.
Changsha, Shenyang, Xiamen, Shenzhen and Shijiazhuang city governments had all launched different types of measures to boost their housing sectors, he said.
The Shenyang government had cut deed tax from 3 per cent to 1.5 per cent, while Xian government gave cash subsidies to buyers of private homes.
Most of the changes were launched this month after property sales continued to fall since the fourth quarter of last year. According to government figures, home sales across the nation fell more than 10 per cent to 277 million square metres in the first seven months of this year.
“Including land sales revenues and tax charged from sales of homes, income from the property market probably accounts for 30 to 50 per cent of each city’s total revenue,” Mr Wang said.
As such, shrinking property transaction volume would be acutely painful for local governments, he said.
However, analysts questioned the effectiveness of the measures unveiled so far and pointed out that buyer confidence in the sector was unlikely to be restored by small cuts in taxes.
Earlier this month, US investment bank Morgan Stanley warned the mainland residential market could be headed for a meltdown as home prices and sales continued to fall.
“Property prices are already cracking in major cities. We believe the likelihood of a property sector meltdown is high,” said Morgan Stanley analyst Jerry Lou.
Xavier Wong, the head of research at Knight Frank, also said the housing market had just entered a recessionary stage and was unlikely to rebound unless the central government took significant steps to boost demand by easing its austerity measures.
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