China’s property market is gearing up for change, after the State Council approved a gradual reform of the country’s real estate tax system.
Analysts are expecting the changes to include a new tax on residential property.
The reform is part of efforts to cool the red hot property sector on the Chinese mainland.
Property prices in China have been surging to record highs. Data showed that real estate prices in 70 cities in the country jumped by 12.8 per cent in April. This is the fastest year-on-year rise for a single month in five years.
However, recent government efforts to cool the market appear to be having some effect.
Song Hui Yong, director of Research Consultancy, Centaline China, said: “The number of transactions of new and resale homes in May fell around 70 per cent.
“For buyers in Shanghai, the uncertainty of a property tax, coupled with new cooling measures, has resulted in many taking a wait-and-see attitude. Buyers are reluctant to make any decision before a clear policy is announced.”
Right now, home prices are still at record highs – at an average of US$3,500 per square metre.
According to some analysts, the property tax reform will help to stop prices from spiralling upwards.
Mr Song said: “The new property tax will have two kinds of effect. Firstly, it will help the whole property market to move towards a healthy and sound direction. Secondly, it may slow down the rapid rise in housing prices.”
Others said the reform will also be important in helping to address some inequalities in the housing sector.
Ding Jian, director, Real Estate Research Centre, Shanghai University of Finance & Economics, said: “It will help to adjust the unfair housing distribution and at the same time allocate property resources more effectively.”
Observers have warned that the high cost of housing could hurt economic growth. They also noted that it could become a political flashpoint if younger people felt locked out of having their own homes.
Still, according to analysts, it will be some time before the new tax measures are implemented.
Mr Ding said: “Implementing the property tax policy requires several preconditions. Firstly, it needs to be legislated. Legislation requires a series of procedures which will take time.
“Secondly, in terms of technicalities and assessment standard – the assessment standard means how much the property costs and what standard is used to gauge it.
“Thirdly, it’s relatively complicated. For example, our income tax is deducted from our salary, but where should the property tax be deducted from? Without settling these questions, it is hard to achieve the aim of the policy and that’s why it will take some time before it is implemented.”
China this year implemented a series of nation-wide measures to curb the rapid rising property prices – from increasing the minimum down payment on second homes and mortgage rates to restricting pre-sales by developers and curbing loans for third home purchases.
With Shanghai seen as one of the first cities to implement the tax reforms, analysts said the city will serve as a role model for other cities to follow.
Source: Channel News Asia, 9 Jun 2010