China will set up a property tax pilot plan, taking small steps after years of dithering to tame home prices for common prosperity

The State Council will select the first regions and the timing for collecting the dutiable tariff on land, as well as owners of residential and commercial real estate, according to the state news agency Xinhua
Legally owned rural homes will be exempted from the pilot plan, which lasts for five years before the National People’s Congress (NPC) turns it into a nationwide law, Xinhua said

Property policies

Martin Choi

Published: 9:30pm, 23 Oct 2021

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China’s legislature will enact a property tax in selected regions across the country, rolling out the pilot plan as part of a wider “common prosperity” programme to enhance housing affordability and tame runaway prices.

The State Council, as the government’s Cabinet is known, will select the first regions and the timing for implementing the dutiable tariff on land, as well as owners of residential and commercial real estate, according to the state news agency Xinhua.

Legally owned rural homes will be exempted from the pilot programme, which will last for five years before the National People’s Congress (NPC) turns it into a nationwide law, Xinhua said.

The Ministry of Finance and the State Taxation Administration will draft the relevant measures and regulations for supporting the pilot programme, Xinhua said.

People look at a scale model of apartment buildings in a showroom of the property developer Yango in Xuchang city in Henan province on February 19, 2019. Photo: Reuters.

A pilot plan that lasts five years “implies that it will be at least five years before the introduction of the [nationwide] legislation at the earliest,” the independent economist Ma Guangyuan said in his Weibo post. “The suspense now is which specific cities will be picked for the pilot, and when it will start.”

It has been barely four decades since China transformed the nation’s communal housing into private ownership, a revolution that created the world’s largest property market with US$1.7 trillion of new homes sold in 2017, seven times bigger than the United States, according to Stansberry Churchouse Research. Harking to its socialist roots, the Chinese government had tossed about the idea of taxing property owners for years to rein in runaway prices, redistribute wealth and bolster state coffers with much-needed revenue.

An aerial view of the Evergrande Changqing community on September 26, 2021 in the Hubei provincial capital of Wuhan. Photo: Getty Images.

Local authorities of Shanghai and Chongqing, two of the most populous and wealthiest municipalities in China, were authorised by the central government in 2011 to collect taxes on real estate within their jurisdictions, part of a plan to curb rising prices. A new government team that took over under Xi Jinping’s presidency a year later deferred the idea of expanding the pilot, according to state media, citing technical difficulties.

Nearly a decade later and under Xi’s edict for citizens to share the opportunity to be wealthy, the property tax is again being touted as a likely policy tool. Some government ministers have openly talked about the property tax, with the Finance Minister Xiao Jie saying in a December 2017 report in the Communist Party’s mouthpiece newspaper People’s Daily that the necessary legislation for a tariff based on appraisal value could be completed in 2019.

The legislation remains on China’s economic development plan for the five-year period from 2021 through 2025, even if the government omitted any mention of it in its 2021 legislative agenda for the second year in a row. As the economy was struggling to recover its growth pace amid a worldwide Covid-19 pandemic, the government’s priority was to restore growth, economists said.

The redevelopment of a shanty town in Fu county in the south of Yanan city in Shaanxi province on January 2, 2019. Photo: Reuters.

Efforts to revive the tax began anew in May, as housing prices kept rising despite a slew of administrative measures across the nation to curb speculation. The effort took on extra urgency when Xi defined for the first time what “common prosperity” means during an August meeting of China’s economic leaders: favourable changes in taxes and social security payments for middle income earners, policies that increase earnings for low-income groups and crackdowns on practices and loopholes that may give rise to “illicit income.”

“The current practice in housing and land use will be strictly controlled and guided, especially such behaviour as real estate speculation,” said Yan Yuejin, director at Shanghai-based E-house China R&D Institute. “Taking into account the cities which had been discussed the most recently in the market, Zhejiang province is likely to be included in the tax reforms, especially Hangzhou.”

Additional reporting by Pearl Liu

This article appeared in the South China Morning Post print edition as: Beijing to launch property tax pilot plan