China is considering expanding a pilot property tax program that debuted last year in Shanghai and Chongqing to other parts of the country, according to recent statements from Qu Weidong, an expert from the country's tax authority. If the government follows through with this move, property taxes would likely be levied not just on luxury or high-end homes, as was the case in the two initial test cities, but on a broader range of new and existing residential properties, Qu also mentioned.
While the goal of the property tax system seems to be stemming the flow of hot money into China's property market by making it more expensive for speculators to snatch up real estate for investment purposes, in practice it may do little more than just ratchet up housing costs for regular buyers, running counter to the government's push over the last two years to make homes more affordable.
With China still lacking a well-established information tracking system on the property market, it will be nearly impossible for local tax bureaus to determine whether a home was purchased as an investment or for accommodation. This problem of detection is already apparent in Shanghai and Chongqing, where property taxes have done little to scare away investors. More importantly, since introducing property taxes in these two cities in January 2011, property prices have increased.
In fact, both Shanghai and Chongqing were among the 49 major Chinese cities that saw month-on-month increases in their average home prices in July, according to data from the National Bureau of Statistics released on August 18.
Moreover, when purchasing a home, buyers are already required to pay several different forms of taxes, ranging from land use taxes to asset transfer taxes, which can together account for as much as 70 percent of a home's overall price tag. A property tax, imposed on people for merely holding onto their house, would share many of the same purposes as the slew of existing taxes already in place.
For cash-rich investors gambling on the housing market, one more tax would be a fairly small inconvenience to shrug off. Real home buyers sensitive to price fluctuations though could be forced to delay a home purchase if they see the government jacking up their tax burdens.
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