A tale of 2 cities for property tax reform

By Li Woke and Wang Ying (China Daily)
Updated: 2011-01-28 08:55
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Top rate of 1.2 percent as Shanghai and Chongqing seek to curb prices

BEIJIG - Shanghai and Chongqing will launch the first-ever property tax for second-home buyers, part of a series of government measures to curb soaring prices and real-estate speculation.

The two cities announced on Thursday night that they will levy the property taxes from Friday. The tax will target high-end, newly purchased second homes and will require buyers to pay between 0.4 to 1.2 percent.

Non-local residents without any job or investment in Chongqing will also be taxed when they buy second homes.

In separate statements, the two local governments said the taxes will depend on how values of homes compare to average market prices.

In Shanghai, second-home buyers will pay a tax of 0.6 percent. If values of homes are less than double that of average housing prices, buyers need only pay 0.4 percent.

Taxes will be more staggered in Chongqing. Buyers of new second homes will pay a tax of 0.5 percent if homes are valued at two to three times average housing prices.

Homes valued at three to four times the average prices will be taxed 1 percent, with the highest tax not exceeding 1.2 percent. All villas and town houses in Chongqing will be taxed as well.

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"The property tax can be considered a new measure to adjust demand and supply, curb property speculation and squeeze the housing bubble," Chen Guoqiang, deputy chief of the China Real Estate Society, said.

"The rate, lower than expected, is for the government to test the market," said Carlby Xie, head of research and consulting for North China at Colliers International, a real estate agency.

China took a series of measures last year to rein in property prices, including limiting home purchases, raising down-payment requirements and hiking interest rates twice. Analysts say they believe the property tax is a long-term tool that can help stabilize the market.

The announcement followed the State Council's latest tightening regulation publicized on Wednesday to cool down the housing market, including raising the down payment for second-home buyers to 60 percent from 50 percent.

"The property tax will send prices down, along with the impact of new housing regulations," said Lu Qilin, director of Uwin Real Estate Research Center. "Housing prices may slip by up to 10 percent."

But Chen Yunfeng, secretary general of the China Real Estate Manager Federation, said the property tax will not cause housing prices to drop as demand is still robust, "especially for high-end houses".

Huang Qifan, mayor of Chongqing, said 200 million yuan ($30.38 million) in property tax is expected to be collected this year.

The two city governments told the media that the property tax is aimed to help narrow the wealth gap, guide property purchases in the right direction and better distribute housing resources. The tax collected will be used in the construction of government-subsidized affordable housing projects.

Hu Yuanyuan and Wang Huazhong contributed to this story.