China to pilot property tax in more cities

China's State Council, or the cabinet, plans to include more cities to levy property tax in 2012 after Shanghai and Chongqing were chosen as the first pilot cities a year ago.

The Chinese government has imposed a series of measures to curb property prices in 2010,including tighter lending policies, higher down payments, a ban on third-home purchases, the construction of low-income housing and property tax trials in the two cities.

In March, 46 of the statistical pool of 70 major cities saw drops in new home prices from February as a result of the cooling efforts, while new home prices in 16 cities remained unchanged, according to the National Bureau of Statistics(NBS).

Prices of resold homes stopped growing in 54 cities in March, compared with 59 cities in February, the NBS said.

Chinese Premier Wen Jiabao vowed to continue the government's property curbs without wavering this year, urging local governments not to relax curbs on the sector in order to bring prices back to reasonable levels.

At a press conference after the closing of this year's session of the National People's Congress in mid-March, Premier Wen Jiabao said current domestic house prices are still far from a reasonable level and that home prices should be in line with people's incomes.

To help regulate the income of high-income groups through taxation, the country should implement inheritance and property taxes as soon as possible.

While the pace is rather slow and the scope is still small,the property tax reform will serve as a real estate market stabilizer, helping to curb asset bubble risks.

This can be done by expanding the number of cities involved in the property taxes trial, by carefully including in the necessary real estates' categories that need to pay property tax.

"Property tax can lead to a reasonable housing demand as well as adjusting the imbalance in income distribution," Chinese Finance Minister Xie Xuren said, adding the government is studying "expanding the scope of its property tax trials". But he did not say in which cities the trial would be extended.

Despite speculation about potential pilot cities, first-tier cities are better choices because their housing markets are relatively more mature and second-hand houses there have replaced newly built houses as the main body of sales, said Chen Guoqiang, vice-president of China Real Estate Society.

Property tax can help curb speculative home purchases as people have to take the cost of carry into account when deciding to buy houses, said Chen.

The tax is supposed to evolve into a long-standing system rather than a temporary means to control real estate market, he added.

In addition to its important role in reducing market bubbles, property tax will also bring in substantial revenues for local governments suffering financial difficulties, said Professor An Tifu from Renmin University of China.

Anyhow, property tax is expected to be a price stabilizer for the real estate market as it can eliminate any property prices' rally due to excessive speculation in the market which may inflate asset bubble risk and drag down the whole country's economic growth.