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New property tax aims at fiscal reform
March 1, 2011, Tuesday
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EDITOR'S note:
This is the second and last part of a Wharton Business School article on China's residential property tax. The first part appeared in our newspaper on Saturday.
China's newly implemented residential property tax isn't so much its immediate impact on the market, but rather that it may be the first step of several aimed at changing how local governments manage fiscal revenue.
A shakeup has been coming for a long time. In the 2009 book "Smart Urban Growth for China," Chengri Ding, a professor at the University of Maryland (US state of Baltimore), and Yan Song from the University of North Carolina note that while the country's six non-residential land and property taxes have grown rapidly over the past 20 years, their share as a percentage of total tax revenues was an "unimpressive" 3.65 percent in 2002.
They have been among the many voices calling for residential property taxes along the lines of what Shanghai and Chongqing are now levying.
Long Shengping, professor of East China Normal University and director of the China Real Estate Evaluation Center (CREEC), agrees that the new taxes serve a larger purpose than home buyers and others might immediately see.
"Reducing house prices involves multiple issues and shouldn't be the direct goal of the real estate tax. We should not be using property prices as a benchmark to evaluate the success of the tax," he says.
He doubts that the real estate tax will fundamentally change market behavior. "It may change the behavior of some marginal investors and consumers, or it may delay the timing for people seeking to buy real estate."
He notes that there are larger forces affecting the sector.
As China continues to urbanize, for example, pressure is growing for governments to provide more affordable housing. Still, he reckons that the new tax will over the longer term help shape the development of the real estate sector.
"The pilot projects are a conservative measure, but it has sent a signal to the market. It will help the government gain experience in regulating the market without wreaking havoc," Long says. "Problems will emerge during the pilots, but these will be tackled."
(Reproduced with permission from China Knowledge@Wharton, http://www.knowledgeatwharton.com.cn. Trustees of the University of Pennsylvania. All rights reserved. Shanghai Daily condensed the article.)
This is the second and last part of a Wharton Business School article on China's residential property tax. The first part appeared in our newspaper on Saturday.
China's newly implemented residential property tax isn't so much its immediate impact on the market, but rather that it may be the first step of several aimed at changing how local governments manage fiscal revenue.
A shakeup has been coming for a long time. In the 2009 book "Smart Urban Growth for China," Chengri Ding, a professor at the University of Maryland (US state of Baltimore), and Yan Song from the University of North Carolina note that while the country's six non-residential land and property taxes have grown rapidly over the past 20 years, their share as a percentage of total tax revenues was an "unimpressive" 3.65 percent in 2002.
They have been among the many voices calling for residential property taxes along the lines of what Shanghai and Chongqing are now levying.
Long Shengping, professor of East China Normal University and director of the China Real Estate Evaluation Center (CREEC), agrees that the new taxes serve a larger purpose than home buyers and others might immediately see.
"Reducing house prices involves multiple issues and shouldn't be the direct goal of the real estate tax. We should not be using property prices as a benchmark to evaluate the success of the tax," he says.
He doubts that the real estate tax will fundamentally change market behavior. "It may change the behavior of some marginal investors and consumers, or it may delay the timing for people seeking to buy real estate."
He notes that there are larger forces affecting the sector.
As China continues to urbanize, for example, pressure is growing for governments to provide more affordable housing. Still, he reckons that the new tax will over the longer term help shape the development of the real estate sector.
"The pilot projects are a conservative measure, but it has sent a signal to the market. It will help the government gain experience in regulating the market without wreaking havoc," Long says. "Problems will emerge during the pilots, but these will be tackled."
(Reproduced with permission from China Knowledge@Wharton, http://www.knowledgeatwharton.com.cn. Trustees of the University of Pennsylvania. All rights reserved. Shanghai Daily condensed the article.)
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