A pilot real estate tax will be implemented in select provinces. The Chinese parliament’s highest decision-making body said on Saturday, according to a report published in the Chinese official news agency Xinhua.
According to Xinhua, which areas will be included and other specifics will be decided by the State Council, or Cabinet.
According to analysts, since President Xi Jinping endorsed one of the most significant revisions to China’s real estate regulations in a generation, there has been reinvigoration of the long-proposed and long-resisted property tax in the country.
Since the housing industry was privatised in the 1990s, there has been a rise in property prices by more than 2,000 per cent which has, in recent years, resulted in home affordability becoming a major problem for the Chinese and a tax might aid in controlling that soaring property price.
However, the plan’s announcement comes at a critical moment in the country, as the housing market in China is exhibiting symptoms of stress and home values have begun to tumble in dozens of locations.
According to Xinhua, the both residential and commercial real estate will come under the purview of the tax, as well as implacable on land and property owners. The tax however will not be applicable to lawfully owned rural land or such rural land on which dwellings are erected.
The pilot programmes will run for five years once the State Council issues the specifics.
In was back in 2003 that the notion of a property tax was initially proposed. But it never gained traction owing to worries that it would harm property demand, home prices, wealth of households, and future real estate initiatives.
Local governments and other stakeholders have objected to the tax as they fear that it could degrade property values or cause a market sell-off.
According to the central bank, almost 90 per cent of families own at least one residential home in China.
Analysts, on the other hand, believe that the tax will bring in much-needed money.
“Land sales are not a sustainable source of government revenue any more,” Capital Economics said in a note on Friday. “Gradual implementation should also mitigate fears that a tax could cause prices to crash.”
Homeowners in the megacities of Shanghai and Chongqing were taxed under a pilot project of the new proposed tax law in 2011, but included only those with higher-end houses and second residences, at rates ranging from 0.4 per cent to 1.2 per cent.
However, the pilot programmes have not yet been expanded to include more cities.
According to expectations of analysts, the expansion of the pilot project will include regions in eastern and southern China, such as Zhejiang and Guangdong provinces, which are wealthier and more economically diverse.
“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.
The headquarter of Chinese e-commerce behemoth Alibaba, Hangzhou, is the eighth richest city in China and had a gross domestic product of 1.61 trillion yuan ($252 billion) last year, which was about 70 per cent that of Hong Kong’s.
(Adapted from Reuters.com)