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China to test out property tax plan in some regions — report

Srinivas Mazumdaru
October 23, 2021

China has long considered imposing a property tax nationwide to control the country's property bubble and curb excessive housing speculation.

China Evergrande Group - Evergrande Royal Scenery housing complex in Beijing
About 90% of households in China own their own homes, and many people have more than one propertyImage: Wiktor Dabkowski/picture alliance

The top decision-making body of the National People's Congress, China's parliament, on Saturday announced that it had approved the rollout of a pilot property tax in certain regions of the country, reported state-run Xinhua news agency.    

The State Council, the nation's top government body, will decide on where and how the tax will be administered and other details, the report said.

The tax will apply to both residential and non-residential property as well as land and property owners, but does not apply to legally owned rural homes and residences which are appended, Xinhua said.

China has long considered imposing such a tax nationwide to control the nation's property bubble and curb excessive hosing speculation. 

Average home prices in the Asian nation have soared over 2,000% since the privatization of the housing market in the 1990s, Reuters reported. The prices relative to people's incomes in many cities across the country are much higher than in Western cities like New York and London, where the prices are already considered too high.

Strong opposition to property tax

Nevertheless, there appears to be strong opposition to the levy proposal, both from within and outside the ruling Communist Party of China (CPC).

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The Wall Street Journal (WSJ), citing people with knowledge of the matter, reported recently that there had been negative feedback on the proposal from across the party spectrum.

Many local governments and party cadres have reportedly expressed concerns that such a levy would hit property demand and trigger a plunge in home prices. That, in turn, would erode household wealth and local government revenues. 

About 90% of households in China own their own homes, and many people have more than one property, meaning most people's wealth is linked to real estate. So if the sector takes a hit and home prices start to fall, it could turn many homeowners poorer, causing a drop in consumer spending and hit the already slowing economic growth.

Real estate sector already under strain

The proposal also comes at a sensitive time as China's property market is already under enormous strain following tough debt requirements from the government and the financial troubles of one of the nation's biggest developers, the China Evergrande Group.

The stress in the housing market has already started showing its impact, with Bloomberg reporting this week that residential sales slumped 17% in September and home prices fell for the first time in six years.

Citing potential ramifications of a broader fallout, WSJ reported that Han Zheng, the vice premier tasked with the rollout of the property tax nationwide, has advised President Xi Jinping against imposing the tax too widely for now.  

An initial proposal to test-run the tax in some 30 cities has been scaled back to just around 10, according to the report.

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Not a new proposal

The property tax proposal, however, is not entirely new in China. The idea first surfaced in 2003.

And Since 2011, Chinese megacities Shanghai and Chongqing have been implementing pilot programs levying an annual tax on second homes or high-priced ones at rates varying from 0.4% to 1.2%.

But the pilots have not been widened to more cities so far.

This report uses material contributed by Reuters

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