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Hot topic over 20% tax on profit from selling home

By Cherry Cao   (Shanghai Daily)

09:59, March 06, 2013

CHINA'S 20 percent tax on the profit from selling a house has become a hot topic among economists and analysts after it was announced last Friday.

The central government's latest step to tighten its grip on the property market has sparked a rush to real estate transaction centers across Shanghai over the past few days as buyers and sellers hurried to tie up deals before the tax came into effect.

However, Li Daokui, an economist at Tsinghua University, said the policy would be "actually very difficult to implement" despite seeming to be effective in curbing speculative demand.

"In the long term, such a capital gains tax should be enforced in the country. But in the near term, it's more practical to impose a fixed-rate - 1 or 2 percent - tax on the overall sales price of a property because it is rather impossible to calculate the exact amount of capital gains," Li said.

He gave the example of a homeowner wanting to sell a house he had bought for 1 million yuan (US$160,600) for 1.5 million yuan. It may not be right to say that his capital gain is 500,000 yuan, Li said, as the owner might have spent 200,000 yuan on interior decoration.

Feng Qiaobin, who received her doctorate in economy from the scientific research institute under the Ministry of Finance, shared similar concerns that the policy would face great difficulties in its implementation by local governments since the net profit would be hard to define.

"Difficulties aside, I don't think the policy will be able to rein in speculators effectively as the central government wished," Feng said on her blog.

"Particularly in first-tier cities like Beijing and Shanghai, where the housing market remains a seller's market, it will be most likely that buyers will be the one who finally pay the extra transaction cost. What also might happen is that sellers, deterred by notably reduced profit, will hold back from putting homes on the market, which will also leave pressure on price rises amid a decrease of supply."

Ye Tan, an independent business commentator, wrote on her blog that based on experience in developed countries such as the US, a capital gains tax would not be the key factor affecting home prices. Whether the seller is able to transfer the additional transaction cost to the buyer mostly depends on whether the market is a bull market or a bear market, Ye said.

Ye said that if such a policy was strictly levied, more homebuyers may turn to new homes.

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