Image source,Getty Images
After Chinese leader Xi Jinping voiced his intention to advance real estate tax legislation and trials, the Standing Committee of the National People’s Congress of China announced on Saturday (October 23) that it authorized the State Council to carry out real estate tax reform trials in some regions. Ten years after Shanghai and Chongqing launched China’s first round of real estate tax pilots, this new tax category that has received much attention has finally made new substantial progress.
At present, details such as the scale and tax rate of the pilot have not yet been announced. Experts believe that the imposition of a real estate tax will raise the cost of buying houses for low-income home buyers, and it is unlikely to curb the rise in housing prices.
How will the pilot be implemented
According to the announcement of the Standing Committee of the Chinese People’s Congress, the real estate tax in the pilot area is for residential and non-residential real estate, excluding legally owned rural homesteads and their upper residences. The owners of land use rights and house owners are taxpayers of real estate tax.
The announcement did not specify the scope of the pilot and the specific tax rate. It only stated: “The State Council formulates specific measures for the real estate tax pilot, and the people’s governments of the pilot regions formulate specific implementation rules. The State Council and its relevant departments and the people’s governments of the pilot regions should establish a scientific and feasible collection management model. And procedures.”
In addition, the period of the trial period authorized by the decision is five years, and the start time of the trial implementation will be determined by the State Council.
The news has caused a lot of controversy among netizens on the Internet. Weibo netizen “Qin Feng 20509” said: “If you rent a property for 70 years, you still have to pay taxes. What do you say?!”
Reuters quoted analysts as saying that the new round of trials may first include the wealthier and more diversified regions of eastern and southern China, such as Zhejiang and Guangdong.
“Zhejiang is expected to be included in the reform, especially Hangzhou,” said Yan Yuejin, research director of the Think Tank Center of E-House Research Institute.
Wang Rui, senior China economist at ANZ Bank, predicted in a research report that cities in Shenzhen, Hangzhou, and Hainan may be included in the pilot list.
Image source,Getty Images
Shenzhen may become a pilot city for a new round of real estate tax.
From continuing controversy to “common prosperity”
Not long ago, the Chinese Communist Party’s “Seeking Truth” published an article “Solidly Promoting Common Prosperity” by Chinese leader Xi Jinping. The article proposed that China should prevent polarization and promote real estate tax legislation and trials, making real estate tax a hot topic again.
Xi Jinping put forward in the article: “We must actively and steadily advance the legislation and reform of real estate tax, and do a good job of pilot work.”
Prior to this, China’s discussion of real estate taxes had been going on for many years. In 2011, China conducted the first round of real estate tax pilot projects in Shanghai and Chongqing.
The pilot collection methods in Shanghai and Chongqing are different. Shanghai is mainly aimed at the newly-purchased houses of the city’s resident families in the city and belonging to the second and above resident families (including newly purchased second-hand stock houses and newly-built commercial housing) and non-city resident families’ new houses in the city. Purchased housing. Chongqing is aimed at individuals owning single-family commercial houses, newly-purchased high-end houses by individuals, and the first and above ordinary houses newly purchased by individuals who have no household registration, no business, or no job in Chongqing at the same time.
In short, Shanghai is aimed at residents with multiple suites, while Chongqing is aimed at high-end luxury houses.
Although the pilot projects in Shanghai and Chongqing have been in place for a long time, the talk about the further implementation of real estate taxes in the past ten years has been a lot of thunder and rain.
On October 21, the Wall Street Journal quoted a person familiar with the government’s discussions as reporting that Xi Jinping is facing resistance in implementing national real estate tax measures.
The report quoted people familiar with the matter as saying that earlier this year, Xi Jinping appointed Chinese Vice Premier Han Zheng to be responsible for expanding the scope of property tax collection. However, due to concerns about the wider impact, Han Zheng has advised Xi Jinping not to levy real estate taxes in a large area for the time being. The pilot cities for levying real estate taxes have been reduced from about 30 originally planned to about 10.
The real estate tax has been facing controversies including the legal basis of real estate tax collection and whether it will affect the real estate market.
Image source,Getty Images
Yang Yang, assistant professor of real estate at the Business School of the Chinese University of Hong Kong, told the BBC Chinese that from the pilot projects in Shanghai and Chongqing, there are not many levies, and the tax rate is not high, which has not restrained the rise in housing prices. But in the past, the two places collected real estate tax. The current authorities proposed real estate tax. “Everyone is arguing about how to collect land tax.”
Yang Yang explained that the developer had paid various fees in the early stage of acquiring the land, such as land value-added tax, urban construction tax, and farmland occupation tax. These fees were actually transferred to the buyer at one time during the transaction. “When formulating real estate taxes, land taxes must be included. How to integrate or reduce taxes in the pre-construction and transaction links to avoid double taxation is actually a problem faced by the government when formulating new policies.”
Yang Yang also said that other disputes include the setting and scope of tax rates.
“China’s housing prices, especially in the first-tier cities, are so high, and the housing price-to-income ratio is actually higher. Under such circumstances, adding a real estate tax to the people will require experts to calculate the extent to which they can afford it. Introduce these related policies.”
Does it affect house prices?
When China announced its real estate tax pilot decision, real estate in large and medium-sized cities had already cooled down. The official media China News Agency reported that according to the data released by the National Bureau of Statistics of China on October 20, the price index of newly built commercial housing in China’s 70 cities in September increased by -0.1% on average from the previous month. This is 70% since May 2015. The monthly month-on-month increase in urban housing prices was negative for the first time.
Yang Yang pointed out that if a property tax is imposed, housing prices may fall in cities where housing supply exceeds demand; but in first-tier cities, housing demand is far greater than supply, and housing prices are unlikely to fall.
“In such a market, an additional real estate tax actually only further raises the total price and raises the cost of buying a house a little bit more. It is still passed on to the buyers or rent.” She analyzes.
Image source,Getty Images
Wang Rui also believes that in the short term, the levy of property taxes may increase the cost of holding property and bring downside risks to housing prices. However, in the long run, the trend of rising housing prices will not change.
“From the experience of other countries, there is almost no evidence that real estate taxes can curb house price increases. Both the Shanghai and Chongqing pilots have failed to prevent local house price increases.” She pointed out.
Wang Rui also believes that it remains to be seen whether “common prosperity” can be achieved through real estate taxes. “One concern is that the real estate tax may increase the cost of home purchases for low-income homebuyers, while at the same time failing to effectively curb high-income homebuyers, who are more likely to own multiple properties.”