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Friday, 28 January 2011
China’s first property taxes take effect
Mainland property shares recouped slight losses suffered on Friday on views the first-ever property taxes introduced by the government in two main cities were less harsh than some had feared.
Mainland property shares recouped slight losses suffered on Friday on views the first-ever property taxes introduced by the government in two main cities were less harsh than some had feared.
China’s property sub-index was up 0.3 per cent as of 10.15am in a volatile session which saw it rise as much as 2 per cent after opening slightly weaker.
The Shanghai Composite Index was down 0.5 per cent.
“The tax measures are less harsh than expected while its negative impact has already been priced in,” said Tian Shixin, analyst at BOC International.
“However, there’s limited room for upside, because tax and a slew of other property policies would dent developers’ sales and profitability this year.”
China Vanke, the country’s biggest listed developer, was flat while Gemdale, another major property firm, was up 1 per cent.
Shanghai and Chongqing, in western China, announced late on Thursday that they would start levying property taxes on Jan 28.
In Shanghai, buyers will pay a tax of 0.6 per cent on their new second homes. If values of homes are less than double that of average market prices, buyers need only pay 0.4 per cent.
In Chongqing, taxes are more staggered. Buyers of new second homes will pay a tax of 0.5 per cent if homes are valued at two to three times average market prices.
Homes valued at three to four times average market prices will be taxed 1 per cent, with the highest tax not exceeding 1.2 per cent. All villas and town houses in Chongqing will be taxed as well.
The tax measures came after Beijing earlier this week announced a series of measures to discourage property speculation and curb prices.
“The property tax, as part of the government’s move to tighten control over the housing market, will have a big psychological effect on potential home buyers,” said Ge Haifeng, the research head at China Real Estate Index System in Beijing.
“China’s housing market may get really quiet in coming months.”
Speculation that China could introduce a property tax has helped drag down Chinese stocks 15 per cent in the past ten weeks.
Yet the modest sizes of the tax rates drew scepticism from some analysts about whether they would be effective.
Mark Williams, an economist at Capital Economics in London, said although the rates were in line with market expectations, they were not high enough to deter speculators, or implemented broadly enough to be of significance to municipal budgets.
“The fundamental reason why a lot of people put their money in the property market is because they have very few alternative options,” he said.
“Savings deposits don’t give you much of a return; there’s widespread scepticism about equity markets, and so the money goes into property. I don’t think this is going to fundamentally change that.”
However, He Yifeng, an analyst with Hongyuan Securities in Beijing, said it was too early to judge the success of China’s new property tax regime.
“Once the tax is launched, it is quite easy for the government to adjust the rate,” He said.
“The tax’s effect may be weak at the beginning, but if housing prices remain high, the government can gradually increase the tax rate to depress the prices.”
Talk has swirled in China for months that Beijing was ready to let various Chinese cities, including Shanghai and Chongqing, try a property tax before rolling it out to the rest of the country as part of its anti-inflation campaign.
Analysts said Beijing appeared to be sticking to this plan.
In a statement jointly issued by the Ministry of Finance, the tax bureau and the housing ministry on Thursday, the central government in Beijing said China would roll out the tax nation-wide when “conditions are ripe”.
The statement said local governments would decide the size of the tax and the date of introduction. It said the tax would narrow China’s income gap and the money collected from it would accrue to the fiscal budgets of local governments.
Thursday’s measures will end years of debate about whether property taxes should be introduced in the world’s second-biggest economy. Opponents had worried they could hobble the housing market.
But with property prices jumping by over a fifth last year despite a steady stream of curbs since 2009, analysts said the government likely felt more needs to be done.
China’s annual property inflation ran at 6.4 per cent in December, down a touch from November’s 7.7 per cent, although sequential momentum stayed strong, with prices rising 0.3 per cent on a month-on-month basis.
Administrative policy steps are but one of Beijing’s many anti-inflation policy tools, including interest rates, reserve requirements and the yuan.
But comments from central bank chief Zhou Xiaochuan on Thursday that it would keep the yuan at a stable level should dash the hopes of investors who had bet on China letting the currency rise at a faster clip to fight imported inflation.
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China’s first property taxes take effect
Reuters in Shanghai
28 January 2011
Mainland property shares recouped slight losses suffered on Friday on views the first-ever property taxes introduced by the government in two main cities were less harsh than some had feared.
China’s property sub-index was up 0.3 per cent as of 10.15am in a volatile session which saw it rise as much as 2 per cent after opening slightly weaker.
The Shanghai Composite Index was down 0.5 per cent.
“The tax measures are less harsh than expected while its negative impact has already been priced in,” said Tian Shixin, analyst at BOC International.
“However, there’s limited room for upside, because tax and a slew of other property policies would dent developers’ sales and profitability this year.”
China Vanke, the country’s biggest listed developer, was flat while Gemdale, another major property firm, was up 1 per cent.
Shanghai and Chongqing, in western China, announced late on Thursday that they would start levying property taxes on Jan 28.
In Shanghai, buyers will pay a tax of 0.6 per cent on their new second homes. If values of homes are less than double that of average market prices, buyers need only pay 0.4 per cent.
In Chongqing, taxes are more staggered. Buyers of new second homes will pay a tax of 0.5 per cent if homes are valued at two to three times average market prices.
Homes valued at three to four times average market prices will be taxed 1 per cent, with the highest tax not exceeding 1.2 per cent. All villas and town houses in Chongqing will be taxed as well.
The tax measures came after Beijing earlier this week announced a series of measures to discourage property speculation and curb prices.
“The property tax, as part of the government’s move to tighten control over the housing market, will have a big psychological effect on potential home buyers,” said Ge Haifeng, the research head at China Real Estate Index System in Beijing.
“China’s housing market may get really quiet in coming months.”
Speculation that China could introduce a property tax has helped drag down Chinese stocks 15 per cent in the past ten weeks.
Yet the modest sizes of the tax rates drew scepticism from some analysts about whether they would be effective.
Mark Williams, an economist at Capital Economics in London, said although the rates were in line with market expectations, they were not high enough to deter speculators, or implemented broadly enough to be of significance to municipal budgets.
“The fundamental reason why a lot of people put their money in the property market is because they have very few alternative options,” he said.
“Savings deposits don’t give you much of a return; there’s widespread scepticism about equity markets, and so the money goes into property. I don’t think this is going to fundamentally change that.”
However, He Yifeng, an analyst with Hongyuan Securities in Beijing, said it was too early to judge the success of China’s new property tax regime.
“Once the tax is launched, it is quite easy for the government to adjust the rate,” He said.
“The tax’s effect may be weak at the beginning, but if housing prices remain high, the government can gradually increase the tax rate to depress the prices.”
Talk has swirled in China for months that Beijing was ready to let various Chinese cities, including Shanghai and Chongqing, try a property tax before rolling it out to the rest of the country as part of its anti-inflation campaign.
Analysts said Beijing appeared to be sticking to this plan.
In a statement jointly issued by the Ministry of Finance, the tax bureau and the housing ministry on Thursday, the central government in Beijing said China would roll out the tax nation-wide when “conditions are ripe”.
The statement said local governments would decide the size of the tax and the date of introduction. It said the tax would narrow China’s income gap and the money collected from it would accrue to the fiscal budgets of local governments.
Thursday’s measures will end years of debate about whether property taxes should be introduced in the world’s second-biggest economy. Opponents had worried they could hobble the housing market.
But with property prices jumping by over a fifth last year despite a steady stream of curbs since 2009, analysts said the government likely felt more needs to be done.
China’s annual property inflation ran at 6.4 per cent in December, down a touch from November’s 7.7 per cent, although sequential momentum stayed strong, with prices rising 0.3 per cent on a month-on-month basis.
Administrative policy steps are but one of Beijing’s many anti-inflation policy tools, including interest rates, reserve requirements and the yuan.
But comments from central bank chief Zhou Xiaochuan on Thursday that it would keep the yuan at a stable level should dash the hopes of investors who had bet on China letting the currency rise at a faster clip to fight imported inflation.
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