There’s a chance China might finally put taxes on property
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Vehicles pass unfinished buildings of the Evergrande Oasis housing development in Luoyang (China) September 16-2021.
Carlos Garcia Rawlins | Reuters
BEIJING — China is closer than ever to taxing property owners, analysts say, nearly two decades after authorities began floating the idea.
The Chinese president has been elected. Xi JinpingAn analyst said that the time is now for property tax reform to move forward. Xi stressed the authorities’ dedication to this issue during summer. delivering “common prosperity,”moderate wealth to all people, instead of just a handful.
In an essay from earlier in the month detailing what common prosperity meansXi encouraged the regulation of excessively high incomes through measures such as property taxes tests.
Because it comes from the top, they’ll have to accomplish it. It will happen.
David Roche
Independent Strategy president and global strategist
The State Council was the highest executive body on Saturday authorized to conduct such a test for five years in unspecified regionsThese are the facts. This is the result of years of efforts to curb speculation in China’s real estate market. It accounts for most of households wealth.
“I feel the central government chose” [the]Right time, because of the political reshuffling occurring before and after next year’s 20th party Congress, so it will be difficult to resist a centralised government policy. [a risk]Yue Su is the principal economist of The Economist Intelligence Unit.
Her reference was to the National Congress of the Chinese Communist Party which is held every five years for the purpose of determining top leadership positions.
Since 2003, property tax discussion
China doesn’t have a general tax on property, unlike the U.S. China has different rules regarding real estate ownership. Apartments have been distributed to workers by state-owned companies.
Analysts said that although Chinese leaders had begun to discuss a property tax back in 2003, only Chongqing and Shanghai have yet implemented it.
Larry Hu, Macquarie’s chief China economist, stated that the experiences in these two cities over the past decade don’t make it a strong argument for local governments to implement a property tax.
Hu explained that in 2020 property taxes from Shanghai and Chongqing made up 5% of the local tax revenue and were far lower than those generated by land sales.
Moody’s estimates that more than 20% regional and local revenue is generated by land sales to real estate developers. However, if local governments can tap the lucrative property market through tax channels it may eventually bring in substantial revenue.
According to Moody’s, at least 25% of China’s GDP is made up by real estate and other related industries like construction.
These numbers partially show how important China’s real property is.
Hu stated that China’s privatization in 1998 of the Chinese housing market has allowed an older generation of people to acquire apartments at low prices, giving them a larger percentage of the real estate market than the younger generations. Furthermore, home prices can vary widely by city.
China’s Property Tax is not just about wealth redistribution between the wealthy and the poor. The tax also targets older generations, as well high-ranking citizens. [more developed]Hu stated that city residents should be treated as the majority. Hu stated, “The result is that the resistance to property taxes is both broad and powerful.
Wealth tax
Moody’s estimated that property accounts for 70%-80% of China’s household wealth and generates about 10% of the household’s income.
A national property tax would require the disclosure of real estate holdings by government and business leaders. This could be a problem considering that corruption is being tackled in this country.
However, the most recent political developments may tip the balance. Once, Tycoons built their fortunes by hiring developers such as Evergrande relying on debtFor growth. In the past 18 months, government surveillance has increased on debt use.
Xi also stated in August that pursuing common prosperity in China meant reducing “excessive income” and encouraging wealthy people to contribute to the society. Later in the month, State Tax Administration announced that it was investigating. individuals who concealed their high income and evaded taxes
David Roche, Independent Strategy president and global strategist said that the “big idea” was to “recreate a lot more happy, healthy, middle-class people with affordable housing and access to affordable health care.Squawk Box Asia“
“And in order to do this you need to make sure that housing is for living — that is, not speculation, or for investment,” Roche said. Roche said, “So. [property tax]It is something that will not be left up to the local authorities or local governments to implement. Because it comes from the top, they’ll have to implement it.
Analysts don’t anticipate a nationwide real estate tax even with all the political momentum.
Ting Lu, Nomura’s China chief economist, wrote Monday that while Beijing may be determined to speed up the rollout, it will continue in a prudent way, and only gradually increase the tax.
He said that “still” the expectation of rising home prices would likely be substantially reduced among Chinese homeowners. New home sales could slow down in China, Beijing may face mounting difficulties on the way to a national property tax and short-term pains will not come.
Authorities must ultimately weigh the economic impact of any move on China’s vast real estate market.
Su from the EIU said that simultaneous property dumps could slow down the introduction of tax on property and allow individuals to file for exemptions.
— CNBC’s Weizhen TanContributed to the report.
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