China considers property tax to rein in real estate speculation
Fearful of an U.S.-style real estate collapse, China has doused the country’s sizzling housing market with new rules aimed at cooling property speculation.
The measures, which include raising minimum down payments and restricting purchases of second homes, are already forcing investors to the sidelines. May home sales in Beijing and Shanghai plunged 70% compared with April, while transactions in the southern boomtown of Shenzhen were down 62% over the same period, according to government statistics.
Now policymakers reportedly are planning to add a more powerful tool: a general property tax that would make it more expensive for investors to own multiple units. Speculators have bought millions of homes and apartments in China, pushing up prices and helping fuel a housing crisis, because many of those units sit vacant.
Chinese buyers currently pay a one-time transaction fee when they purchase real estate. But local governments do not assess annual levies like their counterparts in the United States and other developed nations do. Pilot property tax programs now are under consideration in Beijing, Shanghai, Shenzhen and Chongqing, a sprawling municipality of 30 million in southwestern China, according to Chinese media reports.
Experts say it could take some time to work out the details because Chinese municipalities have yet to develop comprehensive property assessment systems. But real estate agents such as Lu Yan say they already are feeling the chill.
Lu was gearing up to sell some trendy loft apartments on the eastside of Beijing and then watch the commission checks roll in. He figured the $300,000 residences would sell out in a matter of hours, especially with a shopping mall and subway line set to open soon across the street. But the project’s developer has held the dwellings off the market, spooked by the new regulations.
“They’re in no hurry to sell,” said Lu, who quit the company after the third postponement. “All the agents were very upset. The developer just wants to wait and see what the government does next.”
Tougher rules and the prospect of a property tax have also hammered Chinese stocks in recent weeks along with real estate sales, raising expectations of a wider slowdown. That’s troubling news for a global economy looking for continued strong growth from China.
But the central government is under increasing pressure to slow the frenzied real estate sector as the vast majority of Chinese are being priced out of the market. Officials are worried about the risk of growing social discontent. The average Chinese home costs more than 11 times a typical household’s annual income, according to one study.
“Having lived through a global recession caused by a housing bubble, the Chinese government is taking a more proactive stance” with its property market, said Patrick Chovanec, an economics professor at Tsinghua University in Beijing.
But Chovanec, like other economists and real estate officials, is skeptical the government will clamp down too tightly. Real estate has proved to be too much of a boon, accounting for about 15% of the country’s economic output.
Central planners will be under tremendous pressure from city and provincial officials not to stifle the housing boom, said Andy Xie, an independent economist in Shanghai. Local governments rely heavily on revenue raised from real estate transaction fees. He said many have accumulated significant debt in recent years to finance infrastructure projects and need those property sales to continue.
“They don’t want the bubble to pop,” Xie said. “The government is leaning against the bubble, not popping it. Nobody believes this policy is sustainable.”
Chovanec said the latest regulations do not address some of the root causes of the real estate frenzy, namely, the dearth of investment alternatives. Interest rates paid on savings in Chinese banks have not kept up with inflation.
“The government has one foot on the accelerator and one foot on the brake,” Chovanec said. “They don’t want to cool [economic] growth.”
Tommy Yang in The Times’ Beijing bureau contributed to this report.
