Shanghai plans property tax to curb price rise

The measure is expected to cool speculative demand, says report

Shanghai, China’s wealthiest city, may impose a property tax to curb price gains, the Shanghai Securities News reported, citing unidentified people.

The city government has already completed a basic plan for the tax, which would affect ownership of investment properties, the newspaper reported. The tax is likely to be applied to existing homes as well as new properties, the report said, without saying when the charge may be levied. The newspaper is affiliated with the official Xinhua News Agency.

‘The introduction of new taxation will curb speculative demand for properties and bring down prices,’ said Zhang Qi, an analyst at Haitong Securities in Shanghai.

China’s government unleashed a US$1.4 trillion lending boom last year to stimulate the economy and is now trying to slow the surge in property prices. Shanghai posted the biggest gains in luxury home prices last year among 56 markets worldwide studied by Knight Frank, according to its March 23 report.

Home prices in 70 major Chinese cities jumped the most in almost two years in February, led by the southern cities of Sanya and Guangzhou. More than 70 per cent of Chinese households consider home prices ‘unacceptably high’, a proportion that has climbed for four quarters, the People’s Bank of China said in its quarterly survey last month.

Shanghai’s property prices may fall as much as 10 per cent this year as the government prepares to roll out tightening measures to cool the overheated market, the South China Morning Post reported yesterday, citing Colliers International.

Premier Wen Jiabao has pledged to restrain speculation in the housing market and curb land hoarding and excessive price gains in some cities, using tools including tax and credit policies.

China scrapped a tax break on property sales in December and the central bank asked lenders to set aside more deposits as reserves twice this year to curb liquidity while leaving benchmark interest rates unchanged. Morgan Stanley said last month that another increase in the requirements may be ‘imminent’ and rates may rise in April.

Source: Business Times, 9 Apr 2010