Top legislature takes a step forward on property taxes . . .
In China, the Standing Committee of the 13th National People's Congress (NPC) met from October 19-23 to consider a range of new proposals including in family education, land borders and national defence mobilization, and the expansion of property tax reform trials. The 170-some member Standing Committee is the permanent body through which the NPC – China’s highest legislature – exercises its power when not in session, and regular meetings are held every two months to draft and revise laws. The property tax pilot regions, to be determined by the State Council, will test out a five-year tax scheme on both residential and commercial properties, although the trial will not apply to legally-owned houses in rural areas.
New momentum under the ‘common prosperity’ banner . . .
The levying of real estate taxes is a long-mooted and much-debated proposal within China’s decision-making body. Residential property taxes were piloted in Shanghai and Chongqing in early 2011 to tackle overheating local housing markets but have made little progress in the country’s legislative planning since. Advancing property tax reform became a key component in President Xi Jinping’s push for ‘common prosperity’ this year, with the intent to enact policy levers related to property values to reduce inequality. Even though the new property tax program lacks concrete detail, much of the levy will fall on higher-income earners who own multiple properties. It will also address speculative property purchases.
Initial impacts visible, both domestically and globally . . .
The news has reportedly already prompted some homeowners, especially in cities seen as possible pilot program participants, to list their extra apartment holdings before prices take a significant hit. While the tax will help diversify investment risks in China’s indebted property market in the medium to long term, the immediate task for regulators domestically will lie in managing short-term shocks from plunging prices. China’s real estate sector is already struggling as troubled property giant Evergrande deals with its default crisis. A cooler Chinese real estate and construction market could also make international exporters feel the pinch. For instance, Australia, a major iron ore supplier to China, is now concerned about the downward price pressure on iron ore. Canadian exporters along the supply chain should likewise closely watch Beijing’s new property tax scheme to identify and respond to its ripple effects.
- Global Times: Homeowners sell off extra units following China’s property tax pilot plan
- NPC Observer: NPC Standing Committee authorizes property tax pilots
- Reuters China: 中国房地产税改革试点进入倒计时 方案或年内出明年正式试点