China Launches New Residential Real Estate Tax start

China’s New Property Tax

First Published Date : January 16, 2011

China is finalizing plans to launch a trial property tax to tame its overheated real estate market. China’s financial hub, Shanghai and Chongqing in Southwest China are among the firsts to taste this new tax. The new tax is expected to be 0.5 to 1.5 percent.

China has long debated having a residential property tax. However, this has never been applied out of fears that it may harm market. Currently, China has real estate tax only on commercial properties. Some tightening measures such as higher down payments, purchase restrictions, hiking lending rates failed to cool down inflated asset prices. This new property tax may be China’s last weapon to curb inflated prices.

Analysts widely believe this new measure should curb speculative demand and should help driving down prices lower in the long run. However, disagreements remain strong as well. Despite some measures taken, housing prices in major cities rose by more than a fifth in 2010. The State Information Center predicts property investment will grow about 20 percent (jumped nearly 40 percent in 2010 from a year ago) in 2011 due to tight property policies.

China recently started to allow its citizens to invest in foreign countries. For example, Wenzhou, which is located in the east, now allows its citizens to make up to 200 million U.S. dollars foreign investments annually. It is expected, but not with certainty, that the newly proposed property tax implementation will be able to curb excessive real estate growth along with many other measures (some mentioned above). Only time will tell.