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Experts consider China’s property tax plans
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CHINA’S long discussed and often stagnated property tax plan has once again come under the public spotlight following its inclusion in the national legislation plan this week.
The Standing Committee of the National People’s Congress, China’s legislature, included a property tax law in its legislation plan, signaling lawmakers’ determination to push ahead with the reform, although progress has been extremely slow.
“Conditions to enact these laws are ripe,” said the Standing Committee website. “The 12th NPC plans to review them within its tenure” which ends in early 2018.
Professor Shi Zhengwen of fiscal and financial law at the China University of Political Science and Law expects the law to be passed by the end of 2017.
But the passing of the law does not necessarily mean it will be put into effect right afterward, analysts said, citing the timing and specific clauses in the law as possible obstacles for its implementation.
The coverage, tax rates and possible exemptions for houses under a certain size are among the most debated topics that need a serious balancing of interests, insiders involved in the legislation said.
China’s current housing tax mechanism mainly taxes development and sales of a property, without taxing home ownership or the market value of homes.
The low cost of holding property has led to speculation as investors tend to purchase multiple houses and hold them off the market in hopes of further appreciation, which has fueled price rises in major cities already wrestling with tight supply.
As part of efforts to cool the property market amid growing public complaints over runaway housing prices, China introduced a trial property tax in cities like Shanghai and Chongqing in 2010.
The Chongqing tax tryout focused on high-end housing while the Shanghai method mainly targeted ownership of multiple houses.
Due to limited rates ranging from 0.5 to 1.2 percent, however, the taxes were seen as too low to be effective in keeping local housing prices in check.
Rumors later spread that more cities, including Wuhan, Hangzhou and Xiangtan, were “technically ready” to join the pilots, but none made any concrete moves, which some analysts have blamed on a lack of legal backing.
In a first sign of the central leadership’s determination, a reform plan approved by the Third Plenary Session of the 18th Communist Party of China Central Committee in 2013 made clear that the legislation of taxes in the property sector would be accelerated.
As the country’s growth started to face increasing downward pressure in recent years and the property market began to cool, discussions on property tax have gradually died down as more attention has shifted to supporting growth.
Reform agenda
Balancing the relationship between the property tax’s possible impact on the market and economic development will be central to the reform agenda, said Zhang Bin, a researcher at the Chinese Academy of Social Sciences.
“In the longer term, the aim of the property tax legislation is to increase taxes on home ownership to improve the price mechanism,” he said.
Zhang Dawei, chief analyst at Centaline Property, pointed out another factor that may hamper the implementation of the tax — property registration.
Given that property registration has yet to be finished, there will be a very low possibility of the property tax being implemented in the short term, which in turn will have limited impact on the market, Zhang said.
With a clear reform roadmap and transparent policies, the public could be more prepared for possible policy changes to help stabilize market expectations to avoid wild swings in prices, analysts said.
China’s real estate market took a downturn in 2014 due to weak demand and a surplus of unsold homes. The cooling has continued this year, with both sales and prices falling.
The weakness in the sector, combined with shrinking exports due to uneven global economic recovery, dragged China’s growth to 7 percent in the first half of the year.
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