China Cuts Home Taxes in Expansion of Efforts to Clear GlutBloomberg News
Ministry of Finance says it will cut deed and business taxes
Mortgage down payment requirement was eased two weeks ago
China’s Ministry of Finance said it will cut taxes on home transactions as it steps up support for the property market, after the central government eased mortgage down payment requirements to the lowest level ever earlier this month.
China will set the deed tax at 1.5 percent of the home’s value for first residences bigger than 90 square meters (969 square feet) and at 1 percent for those smaller than that size, the ministry said in a statement on its website on Friday. Homeowners that live in cities other than the four first-tier ones including Beijing, Shanghai and Shenzhen will also be exempt from paying a business tax on properties sold after two years of purchase. The new rules will be effective as of Feb. 22.
In reducing the taxes, China took another step to prop up home sales as it seeks to dissolve a glut of unsold homes. The government has pledged to reduce home inventory as one of its key tasks in 2016. The area of unsold new homes nationwide increased 12 percent from a year earlier to 441 million square meters (4.7 billion square feet) as of Nov. 30, according to the latest available data from the statistics bureau.
While the authorities’ supportive stance to the property market is known to the market, “the frequency of such measures is prompting optimism that the government will boost stimulus more strongly,” Du Jinsong, a Hong Kong-based analyst at Credit Suisse Group AG, said by phone.
Stimulus for ‘Upgraders’
The tax cuts will mostly benefit buyers of “non-ordinary” apartments, which have different definitions across cities but typically refer to apartments larger than 144 square meters with prices above the reach of many buyers, according to Liu Yuan, a Shanghai-based research director for Centaline Group, China’s biggest property agency. Such apartments are currently subject to as much as 3 percent of deed tax, according to Liu.
“The government is encouraging people to upgrade their homes,” Liu said by phone. “It will be a boost to the stronger markets, but may not have too big an effect on cities where the inventories are huge,” he said, adding that down payments and taxes may be cut further.
The deed tax will be cut to 2 percent for second homes bigger than 90 square meters and 1 percent for smaller residences, according to the statement. The eased deed tax requirements for second homes will exclude buyers in the four first-tier cities.
The intense loosening measures on real estate this month underlines the resolution by Chinese government to stabilize a slowing economy, Ning Jingbian, a Beijing-based analyst at China International Capital Corp., wrote in a note after the statement. After six interest-rate cuts since November 2014, China on Feb. 2 said it will allow banks to cut the minimum required mortgage down payment to 20 percent from 25 percent for first-home purchases in areas without purchase restrictions, while the minimum down payment for second-home purchases was cut to 30 percent from 40 percent.
Policies in the four first-tier cities, whose home prices jumped most quickly in China, remained largely unchanged, according to CICC’s Ning. New-home prices in the southern trading hub of Shenzhen jumped 47 percent in December from a year earlier, latest data show.
— With assistance by Dingmin Zhang, and Emma Dong