ST : China mulls over tax on residential property

Apr 27, 2010

China mulls over tax on residential property

BEIJING: China is likely to introduce a property tax on residential housing in the first half of the year as part of its attempts to curb spiralling real estate prices, state media reported yesterday.

Such a move would mark a significant escalation of its struggle to cool down a booming property market now widely described as a bubble, the Wall Street Journal said.

The levy would be imposed on a trial basis in Beijing, Shanghai, Chongqing and Shenzhen, the Economic Observer newspaper said, citing sources.

Government agencies including the central bank, the Finance Ministry and the State Administration of Taxation are working out when to implement the tax, it said.

China currently has no such levy on residential property. It does impose a 1.2 per cent tax on 70 per cent to 90 per cent of the value of commercial real estate.

Details of the new tax were not yet finalised, the report said, such as whether it would be levied against all homes or merely on additional residences purchased by an individual home buyer beyond the first property.

The report came after Beijing recently announced a range of new measures to prevent the growth of asset bubbles and soaring property prices.

Official data showed real estate prices in 70 cities jumped 11.7 per cent last month, the fastest year-on-year rise for a single month in five years.

Beijing recently tightened curbs on advance sales of new projects, introduced new restrictions on loans for third-home purchases, and raised minimum down payments for second homes.

State media reports last week said banking regulators had ordered lenders to conduct quarterly stress tests on mortgages as the government tries to clamp down on bad loans and rein in speculation.

How the authorities handle any property tax will have significant implications for China's economy, and will ripple through global markets, the Journal said in its report yesterday.

It added that the construction boom is the main driver of the recovery in China and underpins the country's demand for raw materials, which has helped support global prices for commodities such as copper and iron ore.

Opponents fear new taxes would shatter confidence in the real estate market, leading to a bust that would damage the entire economy, it said.

AGENCE FRANCE-PRESSE

With additional information from the Wall Street Journal