China’s new property tax may prompt owners of multiple homes to sell down their holdings before prices take a hit, say analysts
- With the new levy bound to undercut house prices, agents said those investors might need to offer steep discounts if they want to sell fast
- The proposed property tax is part of a wider ‘common prosperity’ programme to enhance housing affordability and rein in galloping property prices
“Heavily geared investors will be hardest hit as it will become more difficult for them to sell amid a depressed market,” said Huang To, the general manager for project development at real estate agency Centaline’s Guangzhou unit. He was referring to investors who had borrowed heavily to buy several properties.
In Guangzhou, one of the cities tipped to be involved in a five-year pilot scheme for the tax, prices of lived-in homes have dropped by around 10 per cent in recent months, while sales have fallen 20 per cent in each of the last few months, he said.
It is hard to fully assess the impact because there are as yet no concrete details of the time frame, the tax rate and which cities would be selected for implementing the levy, he said.
But he estimated that 40 per cent of households in major cities such as Shenzhen, Shanghai and Beijing own at least two homes.
“This will certainly be a consideration when it comes to investment decisions. However, as it is a holding cost versus a transactional cost, it is unlikely to result in property owners rushing to sell properties before [the tax is] implemented,” said Savills’ China research head James Macdonald.
Reuters has reported that only 10 cities, including Shenzhen, Hainan and Hangzhou will take part in the pilot, down from the 30 originally mooted, because of strong opposition to the scheme.
The proposed property tax is part of a wider “common prosperity” programme to enhance housing affordability and rein in galloping property prices.
The State Council, as the government’s Cabinet is known, will select the first regions and the timetable for rolling out the dutiable tariff, which will apply to land as well as owners of residential and commercial real estate, state news agency Xinhua said on Saturday.
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.
“We think the negative impact from the news should be short-term,” said Raymond Cheng, head of China and Hong Kong research at CGS- CIMB Securities, in a report on Monday.
Stephen Cheung, an equity analyst at Jefferies, expects the tax “to be tighter than existing schemes in Shanghai and Chongqing. But it is unlikely to be too harsh given its aim is to stabilise the property market.”
Currently, Shanghai and Chongqing are the only two cities in mainland China where a property tax applies. Tariffs there were introduced in January 2011 to cool their overheated property markets.
In Shanghai, a 0.6 per cent tax applies to second homes, while Chongqing levies a 0.5 per cent to 1.2 per cent tax on new luxury properties.
