China has shelved the nationwide implementation of a controversial property tax, as policymakers are now preoccupied with unleashing the property-purchasing potential to help distressed developers and shore up economic growth. The U.S.-like property tax did not show up in the five-year lawmaking plan released by the Standing Committee of the National People’s Congress (NPC). Instead, boosting the digital economy and ensuring financial stability have been elevated as priorities in the legislative agenda. Yi Xianrong, former Researcher with the Chinese Academy of Social Sciences (CASS), said Beijing is trying to boost consumer confidence and improve expectations, but shelving the property tax “will have little impact on the property market”.
The property tax was previously discussed to curb rising house prices and speculation by increasing homebuyer’s holding costs, and also to alleviate the crushing debt pressure on local governments while advancing Beijing’s plans to narrow the wealth gap. However, Yi warned of an ongoing transformation of property supply and demand, as price expectations are shifting from “only rising, not falling” to “only falling, not rising”.
The wait-and-see attitude has further pinched developers that are already being squeezed by a debt crisis, as seen with Evergrande and Country Garden. “The government should consider taking over properties developed by those close to bankruptcy, and turning them into affordable housing,” Yi said. China’s national household debt, three-quarters of which is from property, reached 63.5% of gross domestic product (GDP) in the second quarter, according to the National Institution for Finance and Development, a massive rise from 17.9% in late 2008, and it is approaching the 65% red line of the International Monetary Fund (IMF), indicating a rise in financial risks. Lawmakers proposed the property-tax legislation five years ago, after a small pilot program started in 2011 to levy such a tax on certain residential property owners in Chongqing and Shanghai. China’s Ministry of Finance (MOF) decided not to extend the property tax trials last year, in a bid to shore up market confidence amid the pandemic.
Despite the decision to shelve the property tax, the government could eventually opt to extend property-tax pilot programs in more cities. Real estate remains a pillar industry of China’s USD18 trillion economy. Its added value stood at CNY7.3 trillion last year, accounting for 6.1% of the national GDP. However, after more than 20 years of construction, China has more homes and flats than its people need. China issued a total of 790 million real estate certificates in the past decade. National property investment fell 8.5% from a year earlier in the first seven months of the year, and residential investment was down 7.6%.
Beijing has introduced new policies to stimulate the property sector over the past month, including lowering payment ratios and mortgage rates while lifting purchasing restrictions in some cities. Speculation is rising that home-purchasing restrictions could be removed in first-tier cities such as Beijing, Shanghai, Shenzhen and Guangzhou, the South China Morning Post reports.
