Shanghai lowers tax on new flats
Sandy Li and Peggy Sito
Shanghai plans to relax its housing criteria to help more people qualify for preferential tax treatment to revive the property market despite recent central government comments reiterating that measures to curb the sector must remain in force.
From March 1, the city will raise the price threshold for what it calls 'normal' housing to 3.3 million yuan (HK$4.06 million), from 2.45 million yuan, according to the Shanghai municipal bureau of planning and land resources.
This effectively eases the tax burden because the deed tax for normal housing is 1.5 per cent, but 3 per cent for luxury units. First-time buyers have to pay 1 per cent deed tax for units below 90 square metres.
The easing comes a week after Wuhu in Anhui province suspended its policy of providing cash subsidies for people buying property, and analysts said they thought the about-face reflected central government pressure.
Albert Lau, managing director of Savills China, said local governments wanted to revive end-user demand.
'This is a measure aimed to stimulate end-user demand through preferential tax treatment. The move is in line with the Shanghai municipal government's pledge announced at the beginning of the year,' Lau said. But he said the impact would be minor and would have a relatively indirect effect. Lau said major mainland banks had already responded to the move by charging first-time buyers a 10 per cent discount to the central bank's 7.05 per cent benchmark rate. This effectively cut the rate first-time buyers paid to about 6.34 per cent.
When liquidity was tight at the end of last year banks were effectively charging buyers 1.1 times the benchmark rate, forcing them to pay more than the benchmark
Huang Hetao, an analyst at Century 21 in Shanghai, said more than 60 per cent of new flats would now fall under the category of normal, against 20 per cent previously. More than 80 per cent of units in the secondary residential market would be classed as normal housing. 'Buyers and sellers will save 3 to 5 per cent in transaction costs from next month,' he said.
Wang Yulin, a senior official with the Ministry of Housing and Urban-Rural Development, said local governments should stick to the policy set by central government.
His comments came after the Wuhu city government said it would offer subsidies of 50 yuan per square metre for buyers of new homes between 70 square metres and 90 square metres, and 150 yuan a square metre for new homes of less than 70 square metres. Three days later, Wuhu dropped the plan.