As China drafts property tax law, fate of pilot programme up in the air

The mainland has started drafting a property tax law, but analysts are not sure whether it means a pilot programme already in place for three years will be suspended.

A trial tax was imposed in 2011 on owners of spacious, expensive and multiple homes in Shanghai and Chongqing.

However, home prices in the two cities, particularly Shanghai, have kept rising, leading critics to conclude that the pilot was a failure - mainly owing to the limited number of homeowners it affects and the low tax rates of up to 0.6 per cent in Shanghai and 1.2 per cent in Chongqing.

Widespread speculation arose that the government would experiment with the tax in more cities - such as Beijing, Shenzhen, Hangzhou in Zhejiang province, and Nanjing in Jiangsu where home prices have been soaring - before taking it nationwide.

Kan Ke, vice-chairman of the Legislative Affairs Commission of the National People's Congress, told reporters on Sunday that the government "is drafting the [property tax] law and will submit it for approval when the time is ripe".

That relieved some industry figures, as they interpreted it as a move to suspend the trial scheme until the law is ready.

"The property tax is an issue that has plagued the market for a long time," Yu Liang, president of China Vanke, the country's biggest developer by revenue, has said.

Beijing has no plan to levy the property tax this year, vice-mayor Li Shixiang said last week.

There is a growing consensus that the mainland's leaders are distancing themselves from housing inflation, instead focusing more on the establishment of a long-term mechanism that can deflate the property bubble without causing much damage to the broader economy.

But Matthew Kong, associate director of corporate ratings at Standard & Poor's, was not convinced, saying authorities must expand the trial before drafting a law that would be effective. "If the trial is not very successful, how can we trust the law?"