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Print Edition> Forum
UPDATED: January 31, 2011 NO. 6 FEBRUARY 10, 2011
Will Tax Help to Cool the Overheated Property Market?

People argue property tax will push up housing prices and rents, because nowadays it is house buyers who pay various taxes. A typical example was the levying of business tax in 2005, which boosted the prices of secondhand houses.

This argument seems reasonable, but takes two preconditions for granted: first, speculators totally ignoring property tax and carrying on with their current scale of investment; second, housing prices remaining high and never falling.

Excessive housing prices result from speculation. After purchasing the houses, speculators do not rent the apartments or sell the houses, but wait until housing prices go up and up. In October 2010, it was found power meters in tens of millions of urban apartments read zero for more than six months, which implies there were no people living in these apartments at all.

Therefore, if tax above a certain rate is levied on houses not used for living (suppose the annual housing price growth rate is 10 percent and the interest rate for long-term deposit is only 5 percent, then a 5-percent property tax rate will deter most people from speculating on property because, with the addition of various trading fees, investment in property will cause losses), then what could happen?

First of all, speculative capital will cease flowing into the property market and speculators will begin to expect slumps instead of endless rises. In this way, a large number of empty residences will be released for the real estate market. Gradually, prices will begin to fall. With expensive secondhand houses, even with all kinds of additional fees, prices will be much lower than present level. Finally, housing rents will fall too, because many people who can't afford an apartment and have to rent houses would then be able to retreat from renting.

Who is most frightened by such scenarios? Of course, property developers, speculators and local officials who depend on land transfer fees to create wealth. In recent years, these people have taken advantage of exorbitantly high property prices. But now, as property tax is likely to deprive them of easy big profits, certainly they will stand against it.

Chongqing's measures are mild, because the tax mainly targets high-end housing. Nevertheless, due to its significance in "breaking the ice" as it were, vested interest groups, fearing their good days are coming to an end, can't wait to claim tax will push prices up.


Ma Guangyuan (New Express Daily): Increasing numbers of Chinese feel the tax will not rein in rocketing housing prices, but instead may fuel frustration among the country's urban middle class.

Take the tax rate for example. No matter if it is 1 percent or 0.5 percent, it is not comparable to the surging speed of current housing prices. Coming to taxation targets, no matter if they are based on area or cost, the group of people who will be directly affected will be the middle class. Low income earners might be exempt, a common practice in almost all countries levying property tax. As for the rich, a property tax will never pose a threat.

Finally, those who will be hit hardest will be the relatively rich middle class who own more than one apartment. For these people, even if the tax rate is only 1 percent, it will be equivalent to more than 10,000 yuan ($1,493), and this loss will affect their daily lives. As a result, a property tax, rather than a crackdown on housing prices, will hurt the middle class.

Therefore, it's very important to make sure the tax is focused on those the government wants to target, but not ordinary house buyers.

Because of China's special land policies, which allow buyers only a maximum 70-year right for residential land use, plus a huge land transfer fee, buyers have already paid a great deal for their houses, so a property tax seems to be institutionally unreasonable.

Deng Xiaoyong (www.sohu.com): The purpose of the property tax is to crack down on house speculation and in turn to change the structure of supply-demand relationship in the market and eventually to curb the housing prices. But, if real estate is still a "pillar industry," the great demand will exist; when domestic investors have no better investment channels, they will not leave the market because of a 0.3 or 0.4 percent tax. Besides, levying property tax will indirectly increase the cost of buying an apartment for ordinary people. So, the demand in the market will still not be met and the housing prices will still go up.

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