Property tax aimed at cooling hot residential market

By Wang Ying and Wang Huazhong (China Daily)
Updated: 2011-01-29 10:16
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SHANGHAI/CHONGQING - A new property tax in Shanghai will help cool the city's overheated housing market, said analysts.

The tax, introduced on Friday, will steer many speculators away from buying property in the city, according to the analysts.

The municipal government announced on Thursday evening it was introducing the new tax. It became effective the following morning.

The tax applies to the purchase of new homes that also meet certain other criteria. The rate for the new tax is 0.6 percent.

"So far, the market has reacted calmly toward this new tax because the city had already put restrictions on homeowners wanting to buy additional properties," said Zhu Pingping, an analyst of Shanghai Sinyi Realty Agency and Consulting Co.

According to Huang Hetao, an analyst with Century 21 China Real Estate in Shanghai, the property tax is aimed at curbing desire among speculators.

Huang also praised the timing of the introduction of the new tax - one week ahead of the Spring Festival - saying the period is usually very slow in the real estate industry and that fact will ensure the market has time to digest and cushion any negative impact.

Lu Qilin, deputy director of the Uwin Real Estate Research Center, said the tax will mesh well with other initiatives to cool the property market.

"The property tax will lead the housing price downward together with the impact of the new housing regulations released by the central government earlier," Lu said.

On Wednesday, the State Council released a regulation to cool the nation's housing market, including raising the down payment needed to buy a second home to 60 percent from 50 percent.

Lu told China Daily many speculators will likely choose to buy investment homes in other cities and the cost of homes in Shanghai could fall by as much as 10 percent as a result.

"But considering the property market's key role in the city's economy, the cost of homes probably won't fall much more."

The property tax will only apply when second homes purchased by families take the total space of the two properties to a gross total that exceeds 60 square meters per person in the family.

The tax will be levied on the area that is in addition to the allowable 60 sq m per person.

Online commentators were skeptical about whether the tax will cool the housing market.

A nationwide online survey conducted by news portal showed 57.1 percent of the 149,821 netizens polled opposed the tax. More than 60,000 respondents said they thought property prices would continue to rise in spite of it.

Meanwhile, in Chongqing, Mayor Huang Qifan said at a news conference on Thursday evening that a property tax launched there was about more than just cooling the market.

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"The tax can curb high prices and speculation to some extent and optimize the property market," said Huang. "But the property tax in Chongqing is not primarily being launched to slash home prices."

Instead, Huang said the "major goal is for the integrity and optimization of China's taxation system in the long term and for a fair redistribution (of resources)."

According to figures from the China Index Academy, the average cost of a home in Chongqing is 6,533 yuan ($992) per sq m, making it one of the least heated markets among China's 10 biggest cities.