Preferential tax policy implemented to spur residential property sector

Preferential tax policies — including lowering transaction costs — have been announced to actively support housing demand and ease financial strain among real estate developers, according to an announcement jointly published by the Ministry of Finance, the State Administration of Taxation, and the Ministry of Housing and Urban-Rural Development on Wednesday.

Yan Yuejin, deputy head of the Shanghai-based E-House China R&D Institute, said the policies will be sweepingly beneficial, as they reduce taxes for homebuyers, homeowners and property developers at the same time.

According to the notice, the favorable 1 percent deed tax was extended to apartments sized at or below 140 square meters against the previous requirement of 90 sq m or below for both first and second homes nationwide.

The change in deed tax will substantially lower homebuying costs and help boost market activity, particularly in large cities, Yan said.

In the meantime, after scrapping the standards of identifying ordinary and non-ordinary properties, residential apartment dwellers or owners will no longer be charged value-added taxes if sellers have kept them for two years or more, the announcement added.

"The burden will be greatly eased. For example, if an apartment in a first-tier city is priced at 10 million yuan ($1.38 million), the owner will no longer have to pay value-added taxes between 100,000 yuan and 250,000 yuan under the new policies," Yan said.

Chen Sheng, president of the China Real Estate Data Academy, said the favorable taxation is part of a new round of supportive measures supporting the property sector, and it will encourage housing transactions, lower transactional costs, and make the trading process smoother.

Chen said the positive November data so far indicate that policies introduced in the past few months have met their expectations, and it is hoped that all parties and policies will work together with the new measures to support the further recovery and stabilization of the housing market as a whole.

Li Yujia, a researcher on residential policy in Guangdong province, said the measures are a response to the news conference held on Nov 8, when Minister of Finance Lan Fo'an said new tax policies to support the healthy development of the property market had been submitted for approval and were about to be published soon.

"Ever since the news conference, market speculation on possible tax cuts has never subsided," Li said.

"The new taxation policies are in line with the trend of Chinese people's housing requirements, which are shifting from quantity to quality. Therefore, a unified and lowered taxation that addresses both new supply and demand, and streamlines home transaction procedures, will be helpful to form a virtuous cycle," said Li.

"The great frequency of favorable policies this year is creating positive effects on the economy, and efforts are needed to ensure their implementation and promote the introduction of more policies at an accelerated pace," Lan said at the news conference on Nov 8.