China to introduce pilot property tax in some regions

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China to introduce pilot property tax in some regions

SHANGHAI: The top decision-making body of the Chinese parliament said on Saturday Oc 23 it will roll out a pilot real estate tax in some regions, the official Xinhua news agency reported.

The Cabinet or State Council will determine which regions will be involved and other details, Xinhua added.

The long-resisted and long-mooted property tax has gained new momentum since President Xi Jinping threw his support behind what experts describe as one of the most profound changes to China's real estate policy in a generation.

A tax could help red-hot home prices that have soared more than 2,000 per cent since privatisation of the housing market in the 1990 s and created an affordability crisis in recent years.

But talk of the plan comes at a sensitive time, as the property market is showing significant signs of stress and home prices have started falling in tens of cities.

The tax will apply to residential and non-residential property as well as land and property owners, but does not apply to legally owned rural land or where residences are built on it, Xinhua said.

The pilot schemes will last five years from the issue of the details from the State Council.

The idea of a levy on home owners first surfaced in 2003 but has failed to take off due to concerns that it would damage property demand, home prices, household wealth and future real estate projects.

It has faced resistance from stakeholders including local governments, who fear it would erode property values or trigger a market sell-off.

Over 90 per cent of households own at least one home, the central bank said last year.

Analysts say the tax will bring in much-needed revenue.

Land sales are not a sustainable source of government revenue anymore, Capital Economics said in a note on Friday. Gradual implementation should also mitigate fears that a tax could cause prices to crash. In pilot programmes rolled out in 2011, the megacities of Shanghai and Chongqing taxed homeowners, albeit only those possessing higher-end housing and second homes, at rates from 0.4 per cent to 1.2 per cent.

But until now the pilot programmes have not been widened to more cities.

Analysts expect a wider pilot to first include richer and more diversified regions in eastern and southern China such as the provinces of Zhejiang and Guangdong.

It is expected that Zhejiang is likely to be included in the reform, especially Hangzhou, said Yan Yuejin, director of Shanghai-based E-house China Research and Development Institution.

Hangzhou, the base of e-commerce giant Alibaba, is Hong Kong's eighth-richest city, with economic output reaching 1.61 trillion yuan US $252 billion last year, about 70 per cent of China's gross domestic product.