Print

Mail

wiki links

PRC property stocks plummet on revival of capital gains tax

Share prices of China's real estate developers were sharply lower in trade yesterday after a revived capital gains tax spooked investors worried that company profits would suffer.

China-based property firms tried to assuage investor fears with a slew of statements to the two domestic bourses in Shanghai and Shenzhen, saying that they expected a limited impact from the belt-tightening regulations.

Nevertheless, nervous investors continued to dump their holdings, with most property concerns falling after Wednesday's rout.

Tax on net gains

The State Administration of Tax-ation announced on Wednesday that it would begin to enforce a land appreciation tax of 30 percent to 60 percent on net gains made from all property development deals starting on Feb. 1.

The tax regulator said it would collect the tax as soon as a development project is completed, in what is a sharp reversal of a law that was first introduced in 1993 but widely ignored.

The move designed to absorb profits depending on the size of a project should reduce the attractiveness of investing in Chinese property amid mounting concerns that previous measures have failed to bring down prices.

Among companies filing statements, China Vanke (萬科企業), China's largest property group, said expected profit growth last year of 50 percent to 65 percent would not be hit as it had pre-empted the policy change through prepayment.

Nevertheless, in afternoon trade shares of Vanke tumbled 3.4 percent to 16.70 yuan (US$2.14) after closing on Wednesday at 17.28, down 10 percent.

Shenzhen Changcheng Estate Group Holding (長城地產集團) said in its filing that it had also prepaid the tax in accordance with local government rules, the Shenzhen exchange-traded group said.

Changcheng stock fell 9.5 percent to 16.23 yuan from Wednesday's finish of 17.93 yuan, down 10 percent.

Inflation worries

Beijing has imposed a series of measures in an effort to cool a boom in construction and bank lending that Chinese leaders worry could spark inflation or a debt crisis.

The government also is trying to encourage developers to supply more moderately priced housing instead of villas and luxury apartments.

Last year, prices of newly built homes in many cities rose more than 10 percent, Xinhua news agency said.

Authorities have raised interest rates twice in the past year and banned outright some types of construction such as luxury villas.

To discourage speculation, the administration also has imposed a tax on sales of existing property that is held for short periods.

Investment in real estate in China in the first 11 months of last year was up 24 percent from the same period of 2005, Xinhua said.
This story has been viewed 1188 times.