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Experts warn of capital gains tax difficulties
By Cherry Cao |
March 5, 2013, Tuesday
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Online Edition
Online Edition
REAL estate industry analysts and economists have warned of difficulties enforcing a 20 percent capital gains tax introduced on Friday.
This is the latest move by central government to tighten its grip on the sector and rein in speculation.
It comes as predictions of further increases in Shanghai home prices saw real estate trade centers packed with anxious would-be buyers over the weekend.
Li Daokui, an economist at Tsinghua University and a member of the Chinese People's Political Consultative Conference, said in Beijing that the policy is "actually very difficult to implement," even though in theory it would seem effective in curbing speculation.
"In the long-term, such a capital gains tax should be enforced in the country," Li said.
"But in the short term, it's more practicable to impose a fixed rate - 1 or 2 percent - tax on overall sales price of a property because it is impossible to calculate the exact amount of capital gains."
"For instance, say a home owner wants to sell his house, which was purchased earlier at 1 million yuan (US$159,235), for 1.5 million yuan," said Li.
"In that case, we can't simply say his capital gains then total 500,000 yuan because the owner might already have spent 200,000 yuan on improvements, explained the economist.
Feng Qiaobin, who received her doctorate in economics from the Scientific Research Institute under the Ministry of Finance, voiced similar concerns.
She said the policy is set to encounter great difficulties during implementation by local governments as the net profit made by a home seller will be very hard to define.
"Such difficulties aside, I don't think the policy will be able to rein in speculators effectively as the central government wished," Feng said on her blog on caijing.com.cn.
"Particularly in first-tier cities like Beijing and Shanghai, where the housing market remains a sellers' market, it will be most likely that buyers will be the one who finally pay the extra transaction cost.
"What also might happen is that sellers, deterred by notably reduced profit, will hold back from putting homes on the market, which will also leave pressure on price rises amid a decrease of supply."
Ye Tan, an independent business commentator, wrote today on her blog on hexun.com that from experiences gained in developed countries like the United States, a capital gains tax will not be the key factor affecting home prices.
Whether the seller is able to transfer his additional transaction cost to the buyer mostly depends on whether the market is a bull market or a bear market, Ye said.
Ye also predicted that if such a policy is vigorously enforced, more home seekers, particularly owner-occupiers in cities where the local real estate market is a sellers' market, are expected to turn to the new home market instead of seeking existing houses in order to avoid extra costs.
This is the latest move by central government to tighten its grip on the sector and rein in speculation.
It comes as predictions of further increases in Shanghai home prices saw real estate trade centers packed with anxious would-be buyers over the weekend.
Li Daokui, an economist at Tsinghua University and a member of the Chinese People's Political Consultative Conference, said in Beijing that the policy is "actually very difficult to implement," even though in theory it would seem effective in curbing speculation.
"In the long-term, such a capital gains tax should be enforced in the country," Li said.
"But in the short term, it's more practicable to impose a fixed rate - 1 or 2 percent - tax on overall sales price of a property because it is impossible to calculate the exact amount of capital gains."
"For instance, say a home owner wants to sell his house, which was purchased earlier at 1 million yuan (US$159,235), for 1.5 million yuan," said Li.
"In that case, we can't simply say his capital gains then total 500,000 yuan because the owner might already have spent 200,000 yuan on improvements, explained the economist.
Feng Qiaobin, who received her doctorate in economics from the Scientific Research Institute under the Ministry of Finance, voiced similar concerns.
She said the policy is set to encounter great difficulties during implementation by local governments as the net profit made by a home seller will be very hard to define.
"Such difficulties aside, I don't think the policy will be able to rein in speculators effectively as the central government wished," Feng said on her blog on caijing.com.cn.
"Particularly in first-tier cities like Beijing and Shanghai, where the housing market remains a sellers' market, it will be most likely that buyers will be the one who finally pay the extra transaction cost.
"What also might happen is that sellers, deterred by notably reduced profit, will hold back from putting homes on the market, which will also leave pressure on price rises amid a decrease of supply."
Ye Tan, an independent business commentator, wrote today on her blog on hexun.com that from experiences gained in developed countries like the United States, a capital gains tax will not be the key factor affecting home prices.
Whether the seller is able to transfer his additional transaction cost to the buyer mostly depends on whether the market is a bull market or a bear market, Ye said.
Ye also predicted that if such a policy is vigorously enforced, more home seekers, particularly owner-occupiers in cities where the local real estate market is a sellers' market, are expected to turn to the new home market instead of seeking existing houses in order to avoid extra costs.
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