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SCMP Reporter

The capital gains-type levy has caused a surge in the city's home prices and a dearth of buyers

A tax regime to curb growing property speculation in Hangzhou has been temporarily scrapped, eight months after its introduction.

Starting this month, sellers of property in the city are not required to pay the tax, which was launched on January 1.

The municipal government hopes the temporary halt to the tax will prompt sellers to cut prices to more affordable levels and  attract buyers to the market.

The tax,  similar to the capital gains tax in the west, requires individuals to pay 20 per cent of their net profit from the sale of properties.

Property agents said the tax regime had effectively slowed property transactions, but prices had continued to rise.

In the first half, 557,400 square metres of residential space was sold, down 22 per cent from the same period last year, according to a National Statistics Bureau survey.

However, average home prices ranked sixth in the mainland at 6,613.9 yuan per square metre at the end of June, a rise of 11.8 per cent year on year.

Centaline (China) general manager Phinex Wong  said sellers had transferred the tax burden to buyers by raising prices more than 10 per cent. As a result, prices in the secondary market had soared and the number of transactions had fallen.

Tang Liyan, spokesman for I Love My House, one of biggest property agents in Hangzhou, said: 'Some second-hand apartments in the prime central areas rose by 1,000 yuan a square metre in the first half.

'Sellers keep increasing the prices until buyers cannot afford to pay.'

A second-hand apartment in a Guihua City block was recently sold for about 10,000 yuan a square metre.

According to the Hangzhou Economic Information Centre, the city's average price for a second-hand home from January to May was about 6,400 yuan a square metre.

As a result of higher prices in the secondary market, the price of new apartments has risen to between 7,000 and 10,000 yuan per square metre.

The city's average annual disposal income per person was about 12,900 yuan last year.

Agents said property prices in Hangzhou had doubled in three years with the influx of investment, outpacing the increase in individual savings.

Hangzhou, in Zhejiang province, is one of the richest cities in China. Hong Kong-based Shui On Land recently announced it was developing a large project there - Xihu Tiangdi.

The city government is becoming increasingly concerned that high prices may provoke discontent among the public because prices of ordinary apartments are beyond their reach.

Now, the ratio of supply to demand is about 3:1.

At the peak of the fever, 10 customers competed for an apartment.

Mr Tang said: 'I think demand for second-hand houses is still huge in Hangzhou, but the price is so high it has restrained demand.'

Property agents said the impact was uncertain as the tax had only been suspended two weeks ago.

The immediate impact was insignificant as prices had not fallen after the suspension of the tax policy.

'In the past 10 days, more customers have come to see houses, but the prices almost remain the same and transactions have not increased,' Mr Tang said.

Mr Wong said the sudden change in tax policy reflected the immaturity of the property market in the city. He said in developed countries, sellers would cut prices to boost demand.

'You need to take a longer time to persuade landlords to lower their prices,' Mr Wong said.



Hangzhou tax ditched to help balance market