China sounds a clarion call for a property tax, causing real estate stocks to slump, even if the legal basis for the tax is years away
- The legislation for property taxes has been listed on National People’s Congress work agenda since 2015, but so far no draft has been proposed, thus little detail is known
- Detail matters because a property tax could be toothless if a large exemption area is set, and the tax rate is low, analysts said
A clarion call by China’s legislature to implement a tax on the nation’s property holdings scared investors into dumping real estate developers’ shares, even if the legal foundation for enacting a nationwide levy is at least five years away.
The Shanghai Property Index, which tracks 25 real estate developers on the Shanghai Composite Index, slumped 4.3 per cent on Friday in its biggest one-day percentage decline since October 11, causing at least two of the stocks to fall by their 10 per cent daily limit.
The scare was sparked when Li Zhanshu, the chairman of the National People’s Congress Standing Committee said on Friday that the legislature would focus its energy on drafting several pieces of law this year, including the legal foundations for a property tax.
Chinese Premier Li Keqiang said during his annual report earlier last week that the government would “steadily push forward” the legislation, without elaborating.
A tax on real estate holdings, the largest store of wealth for Chinese citizens, would offer local authorities a new revenue source and wean them off the land sales that contribute to the upwards spiralling of home prices. It would also affect hundreds of millions of property owners in a market where sales topped 15 trillion yuan (US$2.23 trillion) last year, surpassing the United States.