China Approves Property Tax Trials in Two Cities to Curb Prices
China approved property tax trials on some housing in Shanghai and Chongqing, adding to measures announced earlier this week in its campaign to curb real-estate speculation and asset bubbles.
Shanghai will begin trials today, the city said in a statement on its website yesterday. China said Jan. 26 it will raise the minimum down-payment for second-home purchases and told local governments to set price targets for new properties.
Premier Wen Jiabao on Jan. 18 said the government will “resolutely” implement controls on the real-estate market in the first quarter, including curbing speculation and increasing supplies of affordable housing. Property prices rose for a 19th month in December, even after the government suspended mortgages for third-home purchases and restricted loans to developers.
“The property tax followed (Jan. 26) housing curbs, and shows China is serious in cracking down on housing prices,” Jeffrey Gao, property analyst at Royal Bank of Scotland Group Plc, said before the announcement. “If home prices still climb, it will be a failure after this latest round of curbs.”
The Shanghai rate is “temporarily fixed at 0.6 percent for all taxable housing, and is reduced to 0.4 percent for houses bought at prices less than twice the average of newly built commercial homes last year,” the government said. Average sale prices will be released by the local statistics bureau annually.
High-end Taxation
In Chongqing, only homes bought at more than twice the average price will be taxed, with units purchased at more than four-times the average taxed at 1.2 percent, Mayor Huang Qifan said in a live webcast on the state-run People.com site. Trials there also begin today.
Home prices in Chongqing surged 29 percent in 2010 and those in Shanghai jumped 26.1 percent, according to Soufun Holdings Ltd., the country’s biggest real estate website owner. Nationwide, the 6.4 percent gain in housing prices in December was the smallest in 13 months.
Property tax revenue will be used to build more low-income housing, the Finance Ministry said earlier in a separate statement. Levying property tax on individual home buyers can guide them to make “rational” decisions, the statement said.
An index of Chinese property stocks on the benchmark Shanghai equity index was the worst performer among five industry groups last year, declining 28 percent.
The government last year raised down payments for second homes and restricted loans to developers, and some cities including Beijing limited the number of homes local residents can buy. In October, the central bank increased interest rates for the first time in three years and raised borrowing costs for a second time Dec. 25.
‘Much Needed’
“The tax is much needed as it not only suppresses speculation by raising the costs of holding properties, it also increases fiscal revenue,” Cui Juan, a Beijing-based analyst at China Minzu Securities Co., said before the announcement. “The impact on property stocks won’t be particularly big as the market has partly digested the news, unless the tax rate greatly exceeds expectations.”
The down-payment ratio for second homes will rise to 60 percent from 50 percent, the State Council said this week. The Cabinet asked local governments to boost land supply and said they should set price targets for newly built houses based on regional economic growth and disposable incomes.
Deutsche Bank AG said in a report that the most recent restrictions are stronger than curbs in the previous 12 months and reflect the government’s “strong determination” to stabilize property prices. Citigroup Inc. called the measures “harsh.”
China reported the most real estate investment in the world for a second straight year in 2010 as development-site purchases helped lift global commercial property sales by 43 percent, New York-based Real Capital Analytics Inc. said on Jan. 26.
Property developers tapped 79.6 billion yuan ($12 billion) of foreign capital last year, a surge of 66 percent from 2009, according to the National Bureau of Statistics.
Rising real estate prices are the “biggest danger” to the Chinese economy, Li Daokui, an adviser to China’s central bank, said in an interview with Bloomberg News in Davos, Switzerland on Jan. 26.
To contact the Bloomberg News staff for this story: Zhang Dingmin in Beijing at Dzhang14@bloomberg.net
To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net
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