In China, a proposed American-style property tax focused on upscale real estate in high growth ares, is being met with criticism. However, soaring prices are putting property out of reach for most of China’s citizens, and authorities are anxious to prevent a widening of the gap between classes. See the following article from Property Wire for more on this.
China is considering introducing new or higher taxes on real estate, especially higher end projects and possibly even a US style property tax, in a bid to curb escalating prices.
It is thought the new tax will be aimed at those buying multiple properties, luxury real estate and in select cities where price growth is deemed to be out of hand.
‘The main purpose of such a tax would be to dampen speculative demand and to increase the costs of holding property for wealthy people,’ said Hingyin Lee, director of research and advisory from Colliers International.
The move is fiercely opposed by some property developers and analysts point out that it will have significant implications for China’s economy and thus for global markets. The construction boom is the main driver of the current recovery in China, and is one of the few parts of the world economy growing strongly right now. Construction also underpins China’s demand for raw materials, which has helped support global prices for commodities, such as copper and iron ore.
Average urban-property prices in China rose an average of 11.7% in March, the fastest pace since the Chinese government began releasing the data in July 2005. Prices in major cities such as Shanghai and Beijing are increasingly making property unaffordable for large portions of the population, and have become a focus of public discontent.
China already levies several types of taxes on property sales, but authorities are said to be considering higher transaction taxes that target luxury properties, or possibly a tax on property values similar to the kind levied by local governments in the US.
The thinking is that higher taxes will make it less attractive to invest in real estate and giving local governments more revenue from property taxes could reduce their incentive to keep prices high to profit from sales of land use rights.
But opponents fear new taxes would shatter confidence in the real-estate market, leading to a bust that would damage the entire economy.
‘The details of the tax are very sketchy right now, but there is a sense of urgency from the government to ease prices, not just for economic reasons, but also for social reasons. The rich poor disparity is troubling,’ said Wu Jianxiong, an analyst from Central China Securities.
‘Sales of high-end residential homes will definitely be hit. Transaction volumes have already dipped this week as home buyers take a wait-and-see approach,’ said Johnson Hu, an analyst from UOB Kayhian.
According to central bank adviser Li Daokui the measures to rein in property markets will be aimed at curbing house prices while avoiding a crash. ‘Cities such as Beijing, Shanghai and Shenzhen may experience some correction but price declines won’t be more than 10%,’ he predicted.
But analysts BNP Paribas SA and Citigroup, believe that price falls of nearer 20% will be needed to cool speculation.
The Chinese government has already increased the size of down payments, raised interest rates on second dwellings and barred banks from funding purchases of third homes.
This article has been republished from Property Wire. You can also view this article from Property Wire, an international real estate news site.