China imposes tougher home sale tax to control bubble

09:10, December 10, 2009      

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China's central government, facing rising complaints about soaring home prices, has moved to control bubbles in its real estate sector, by re-imposing a tough sales tax on homes sold within five years of purchase.

The decree is expected to pour cool water on the ever-growing prices of urban houses nationwide, analysts said.

At a State Council meeting on Wednesday in Beijing, Premier Wen Jiabao also pledged support for affordable housing projects in Chinese cities.

Beijing will impose a sales tax on homes sold within five years of their purchase, increasing the time period from two years. The move is targeted to control over-speculation on short selling of urban homes.

The country reduced the penalty period of the tax to two years from five years in January 2009 to stem falling prices, and a chilling economic slowdown which began in the United States.

A record $1.3 trillion of bank lending in the past 11 months has helped revive Chinese economic growth to 8.9 percent in the third quarter. Home prices in 70 major Chinese cities climbed at the fastest pace in 14 months in October.

While on a study tour in Shanghai on November 28, Premier Wen said that his government will support the development of affordable housing for low- and middle-income earners. Property speculation must also be suppressed to promote a healthy real-estate industry, Wen said then.

China's economy still faces many difficulties and challenges next year, the State Council statement said on Wednesday. The nation needs to continue expanding the role of consumption in driving economic growth.

The government will also scale back preferential tax rates offered for purchases of vehicles with engines of 1.6 liters or smaller, according to the statement.

China in January cut the sales tax on the vehicles to 5 percent from 10 percent between January 20 and December 31. It introduced the incentive to revive demand after auto sales rose at the slowest pace in a decade last year. The rate will be 7.5 percent next year, the State Council statement said.

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