China's Chongqing, Shanghai launch property tax to cool housing market (2)

08:12, January 28, 2011      

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File photo taken on Apr. 23, 2010 shows residential areas in Shanghai, east China. The State Council, China's cabinet, has approved on a trial basis the launch of property tax reforms in some cities. Shanghai and Chongqing are cities that will trial the tax first. Shanghai sets its property tax rate at 0.4 to 0.6 percent. (Xinhua/Fan Jun)

The tax bases are 70 percent of the transaction prices now in the initial period and will later be the home evaluation prices, according to the statement.

The levy is designed to help regulate income distribution and promote social equality, and guide reasonable housing consumption for land saving and intensive use, the Ministry of Finance, the State Administration of Taxation and the Ministry of Housing and Urban-Rural Development said in a statement Thursday.

The tax is certain to help stabilize home prices in pilot cities by curbing speculation over the short term, said Yin Bocheng, director of the real estate research center at Fudan University.

A speculator surnamed Shen from the northeastern province of Heilongjiang said she will have to give up buying new homes in Chongqing, with bigger risks following tougher tightening measures and launch of property tax.

"The market prospect becomes uncertain," she said.

In response to the newly-announced tightening measures and the widely-anticipated property tax, the property shares on the Shanghai and Shenzhen bourses plunged 1.6 percent Thursday, compared with a 1.5 percent gain for the benchmark Shanghai Composite Index.

Many, however, believed the tax would not lead to sharp falls in home prices. Ren Zhiqiang, president of property developer Huayuan Group, said home prices are determined more by supply and demand, but demand in some major cities would not be met for another 10 years.

Also, Li Wei, chairman of Chongqing Doorlead Real Estate Co., said the tax levy on high-end homes in Chongqing would have limited impact on the whole housing market.

The tax is trivial compared with the accelerating urbanization, land supply and monetary policy, Li said. "It will have more of a psychological impact on the market. The massive low-cost housing construction will have a much larger impact, as it greatly boosts the supply."

Chongqing authorities have announced plans to build 40 million square meters of low-cost housing for rent in the years leading up to 2012 for 2 million low and middle-income residents.

All property tax revenue will be used for building low-cost housing, Huang said. But the tax levy is more nominal than substantial, he said.

Chongqing will collect 150 million yuan (22.8 million U.S. dollars) in property tax revenues this year, but the investment in low-cost housing amounted to 100 billion yuan, he said.

An Tifu, professor at Renmin University of China, however, believed the tax will eventually help to reduce local governments' reliance on land sales for revenues, which is widely blamed for their unwillingness to rein in rapid rises in housing prices.

Soaring prices are a major concern for urban Chinese with increasingly more finding homes unaffordable. Home prices in some major cities, such as Beijing, have more than doubled over the past two years due to easy credit and low lending rates.

Source: Xinhua

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