China stock market

Chinese property stocks rally on optimism that mortgages and rents to be exempt from tax

New rules likely to take effect in January next year

PUBLISHED : Wednesday, 19 September, 2018, 1:58pm
UPDATED : Wednesday, 19 September, 2018, 3:59pm

Shares in China Vanke and other mainland developers rallied on expectations the government will soon unveil specific rules that exempt mortgages and house rents from taxable income.

Vanke jumped 5.1 per cent to close at 24.17 yuan in Shenzhen on Wednesday, capping its biggest gain since March 29. The gain pared the stock’s decline to 22 per cent in 2018.

Poly Real Estate Group added 4.7 per cent to 12.71 yuan in Shanghai and Future Land Holdings climbed 7.3 per cent to 27.12 yuan. A property gauge under the Shanghai Composite Index (SCI) gained 2.4 per cent.

Related government departments have worked closely on the detailed plans that will allow mortgages and rents to be deducted from individuals’ taxable income, the Securities Daily said in a Wednesday report. The rules are likely to take effect in January next year, according to early government statements.

The deductions are part of a revision of the law passed by China’s legislature at the end of last month to ease the tax burden for Chinese tax payers. The threshold for paying income tax will be raised to 5,000 yuan (US$729) per month from 3,500 yuan starting October, and family expenditure on children’s education and elderly care can also now be deducted from income subject to tax payments.

China has consolidated property ownership data, but to levy tax is a separate struggle

The news gave a boost to property stocks that are struggling after an increased crackdown on rising home prices and scaled-back subsidies for home purchases in smaller cities.

Housing sales growth already moderated to 2.4 per cent in August, because of weakness in third- and fourth-tier cities, according to China International Capital Corp.

GF Securities recommends buying leading developers, such as Vanke and China Merchants Shekou Industrial Zone Holdings, as they stand to benefit from the industry consolidation and steady future earnings growth.

China Merchants Shekou also rallied 7.4 per cent to 19.03 yuan in Shenzhen, after trimming its loss to 2.7 per cent this year.

The Shanghai Composite Index rebounded 1.1 per cent on Wednesday, extending a 1.8 per cent gain from the previous day, as investors translated the official announcement of tariffs on US$200 billion of Chinese goods by the White House as a respite for stocks.