"Red Envelopes" for China's Home Buyers

Discussion in 'China' started by amoy, Feb 20, 2011.

  1. amoy

    amoy Senior Member Senior Member

    Jan 17, 2010
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    The property tax in Shanghai and Chongqing, meant to target last year's bubbling churn in home prices, already looks set to miss its mark

    During the Spring Festival, it is customary for children in China to receive a red envelope enclosed with cash from their elders. This year, many have made the wry remark that the central government had done just that – for some home owners and buyers.
    The property tax on residential housing was touted by the government as a means to cool the property market. It came into force in Chongqing and Shanghai on January 28, nearly a week before the Chinese New Year. The first-ever tax levied on homes in decades now invites more questions than answers: Why Chongqing and Shanghai? Will the tax help rein in runaway real estate prices? What will the government do with property tax revenues?

    The debate over the tax was heated throughout 2010. The opinions were clearly divided among lines of income: university students and low-income people welcomed it while middle-class people were against it. The central government was unsure of the repercussions of the tax, saying that it would approach the nation-wide implementation of the tax with caution. Chongqing, with former Minister of Trade Bo Xilai as the municipal party secretary, has been practicing populist policies, sometimes reminiscent of the Chairman Mao Era. The southwestern city first mulled property taxes in March 2010 and repeatedly urged the State Council, China's cabinet, to approve it. Among market observers, there are diverging theories over Shanghai's inclusion in the pilot program. One that has emerged as most plausible is that the Shanghai government wants to shore up revenue streams once land sale proceeds dry up.

    The pilot programs in Chongqing and Shanghai target different types of homebuyers. Under Chongqing's detailed plan, taxes apply to owners of existing villas and villas to be purchased after March 27. The tax applies to apartments at least twice as large as the average floor space of apartments sold in the southwestern city. In Shanghai, the property tax applies to only new housing, including villas, purchased after March 27. The overall tax burden will be heavier in Chongqing than in Shanghai. There are three tax rates in Chongqing: 0.5 percent, 1 percent and 1.2 percent while it ranges from 0.4 percent to 0.6 percent in Shanghai.
    While many have ridiculed the tax as a red envelope, some scholars have bluntly declared the taxation "robbery."
    Chen Zhiwu, a professor of economics at Yale University, said the approval of property taxes by the State Council indicates the transgression of the executive branch into the legislation field. Putting the property tax into law ought to have gone through several legislative hearings, according to Chen. What remains more unclear is how the tax revenue will be spent. Dong Pan, director of the real estate research institute at Beijing Normal University, raised similar questions.
    Some economists have already begun to doubt the effects of the property tax and the New Eight Regulations, effective on the same day. Xu Xiaonian, professor at China Europe International Business School, said the tax and regulations will not be able to slow the growing pace of housing prices if inflation pressures and tight land supply continue.
    Housing developers, who reaped huge profits from soaring housing prices and increasing sales in 2010, have kept silent with the exception of a few high-profile businessmen. Ren Zhiqiang, director of the Hua Yuan Real Estate Group, said on his microblog that home owners will simply transfer the additional costs – property tax-- to renters. Pan Shiyi, chairman of Soho China, one of the largest developers in Beijing, pointed out difficulties in implementing the tax regulation.
    Chongqing Mayor Huang Qifan has also come out to express his doubts over whether the new taxes will be effective. He said the tax rate may not be high enough and represents an empty gesture, suggesting that a 3 percent tax rate would be more effective.
    Chongqing and Shanghai have said that the property tax revenues will be used to build government-subsidized housing for low-income people. However, they failed to convince the public.
    Both the property tax and the New Eight Regulations, announced on the same day, were part of the government's efforts to cool the housing market since mid-April 2010. In the face of the seemingly-endless cascade of measures to tamp down the housing market named by number, many netizens have said the property market may one day see a New 250 Regulations issuance. In Chinese, the number 250, "erbaiwu" is translated as "foolish."
  3. Ray

    Ray The Chairman Defence Professionals Moderator

    Apr 17, 2009
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    These red envelopes are called 'Red Bombs'?

    There was no property tax in China?
    Last edited: Feb 20, 2011

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