With the threat of a bubble hanging over its real estate market, the Chinese government is weighing plans to implement a new property tax to bring prices back down to earth. In the residential market, tax incentives have been suspended and credit cut back to discourage speculation and reel in prices, while developers have been hit with anti-hoarding measures and stiffer down-payment and pay-back requirements for government land purchases. See the following article from Property Wire for more on this.
China is considering imposing taxes on both residential and commercial property in selective regions in a bid to cool the real estate market, it is claimed.
Analysts believe that the tax could eventually be imposed nationwide. Lee Wee Liat, a property analyst at Nomura International Hong Kong, said the cities most likely to see a property bubble are Beijing, Shanghai, Shenzhen and Guangzhou.
Chinese premier Wen Jiabao has made it clear that the government will uses taxes and interest rates to ‘stabilize’ the property market after prices increased in November at the fastest rates since July 2008.
It is feared that unprecedented lending and inflows of money will inflate asset bubbles in the world’s largest economy. But analysts are divided over how quickly measures will be brought in.
China is unlikely to impose such a levy on homes in the short term because it would have an ‘immediate negative impact’ on the property market and the authorities are targeting a ‘soft landing,’, according to Jerry Lou, Hong Kong-based China strategist at Morgan Stanley.
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Hingyin Lee, Colliers CRE’s director of research and advisory for eastern China, said it would be inadvisable to introduce a property tax this year because main aim of the government is to keep the real estate market stable.
But the government has already announced other measures.
China’s government said it will curb credit for home purchases to reduce speculation and rein in surging real-estate prices. A few days ago Jiang Weixin, the housing minister, said the government will ‘further restrict credit for the purchase of second homes and curb speculative housing investments’ without giving exact details.
The government will also crack down on property hoarding by developers and fake pricing and sales, and ensure that housing demolition is legal, he said.
China has already tightened land sale regulations for developers. The new rules include a minimum down payment of 50% on land purchases from the government. Local governments previously asked developers to put down 20 to 30% of the value of the land in such deals.
The new policy also requires developers to completely pay off land purchases from the government within one year of a sale agreement, with a one-year extension allowed for certain special projects.
The new rules also require local governments to fully reflect the proceeds of land sales in their budgets and forbid them from giving discounts to developers or allowing developers to delay payments.
Matthew Fang, an analyst at Guosen Securities, said the down payment requirement could discourage property developers from further bidding up already record high land prices at auctions in more affluent coastal cities.
‘It will require developers to be at least more rational when acquiring land. They must see how much cash they have in their pockets. The rules may not cause property prices to fall per se, but will at least stabilize them,’ he explained.
The government also scrapped a tax break on home sales it introduced last year to support the real estate market during the financial crisis. Sales of homes by individuals will be exempt from tax only after at least five years of ownership. The period had been reduced to two years.
This article has been republished from Property Wire. You can also view this article at Property Wire, an international real estate news site.