The Chinese municipality of Chongqing plans to introduce a property tax for both new and existing homes, Chongqing Mayor Huang Qifan (黃奇帆) said in an interview with state television CCTV, without providing further details.
Including existing homes is “quite a surprise,” said Wee Liat Lee, a Hong Kong-based property analyst for Samsung Securities Co, adding that the consensus among analysts had been that the tax would be imposed only on new homes. “There will be a lot of administrative issues and there aren’t enough companies to value all the existing properties in China.”
The city of 32 million people in southwest China may bring in the tax in the first quarter and the Chinese Ministry of Finance has agreed to the levy, the official Xinhua News agency reported this week. City officials will work out the details, it said.
Chongqing was expected to be among the first Chinese cities to introduce taxes for new home sales following government measures aimed at containing 18 months of gains in residential prices. Chinese Premier Wen Jiabao (溫家寶) said on Dec. 26 that measures to rein in housing costs weren’t well implemented and that he would introduce more policies to crack down on speculation.
Chongqing will impose a 1 percent tax on properties priced at three times the average for the city, China Securities Journal reported on Monday, citing Huang. The tax rate may be lower than 1 percent and the rates will also vary based on the size of the homes, according to Jeffrey Gao, a Shanghai-based property analyst at Royal Bank of Scotland Group PLC.
“This is certainly not good news,” Gao said. “But it’s also not something that we need to worry too much, because existing luxury homes only account for a very small portion of the Chongqing market.”
Shanghai may also introduce a property tax on new homes in the first quarter, the Shanghai Securities News said on Monday. A gauge of property shares on the benchmark Shanghai Composite Index climbed 1.3 percent at the close yesterday. The measure rose 8.8 percent since the beginning of the year, the most among five industry groups on the key Shanghai gauge.
“It is more complicated to value existing ‘high-end’ properties and implementation could be more difficult,” said Christie Ju, head of Hong Kong and China research at Jefferies Equity Research. “Judging by the stock market reaction in the past few days, the property tax is not as severe as people feared. Negative news is pretty much priced in.”
Chinese central bank adviser Li Daokui (李稻葵) said a property levy of 1 percent is “too high” and relying on taxes to curb real estate prices is “not realistic,” Yangtse Evening Post reported on Tuesday.
China is expected to introduce a 0.8 percent tax rate, which will have a limited impact on the market, according to Nomura Holdings Inc’s Monday report. The levy will probably be introduced in Shanghai and Chongqing and rolled out to other so-called overheated cities such as Beijing, Shenzhen and Hangzhou, analysts led by Alvin Wong (黃智明) said in the report.
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