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» 01/29/2011
New property taxes in Shanghai have little impact on speculation
New taxes are imposed on second homes, first in Shanghai and Chongqing, later in the rest of the country. The government wants to stop real estate speculation, but property remains the main investment opportunity for most families.

Beijing (AsiaNews/Agencies) – China's property shares handled well the first-ever property taxes. Investors quickly realised that they were less harsh than some had feared. The mainland property sub-index in fact recouped its initial losses.

In Shanghai, buyers will now pay a 0.6 per cent tax on their new second homes. In Chongqing, taxes are more staggered. Buyers of new second homes will pay a tax of 0.5 per cent if homes are valued at two to three times average market prices. Homes valued at three to four times average market prices will be taxed 1 per cent, with the highest tax not exceeding 1.2 per cent.

“The tax measures are less harsh than expected while its negative impact has already been priced in,” said Tian Shixin, analyst at BOC International. “However, there's limited room for upside, because tax and a slew of other property policies would dent developers' sales and profitability this year.”

The central government wants to discourage real estate speculation and hold down prices. In big cities, middle class workers have been priced out of the property market, not to mention migrant workers who have become permanent residents and brought over their families.

Mark Williams, an economist at Capital Economics in London, said that rates were not high enough to deter speculators because “The fundamental reason why a lot of people put their money in the property market is because they have very few alternative options,” he said.

Other experts believe only time will tell because now governments can progressively raise taxes and extend them to other big cities.

The Finance Ministry, the Tax Bureau and the Housing Ministry on Thursday announced  that the tax would be extended nation-wide when “conditions are ripe”. In fact, local governments will be able to decide the size of the tax and the date of introduction.

Still, speculation that China was going to introduce a property tax helped drag down Chinese stocks 15 per cent in the past ten weeks.

At the same time, high inflation is expected to continue for more months, this despite attempts by the authorities to contain the rising prices of food and staple.

Real estate is especially worrisome because if the bubble bursts, it would wipe out millions of people who have invested their life savings in brick and mortar.

In past years, vast bank lending has fuelled real estate speculation, something that is now less likely because of new guidelines laid down by China’s central bank.

Last year, property prices in major cities jumped by 20 per cent. The country’s annual property inflation ran at 6.4 per cent in December, down a bit from November's 7.7 per cent. However, sequential momentum has stayed strong, with prices rising 0.3 per cent on a month-on-month basis.

For investors, a higher yuan would increase the relative value of their property, as well as slow inflation; however, central bank chief Zhou Xiaochuan said on Thursday that he would keep the yuan at a stable level.

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See also
10/08/2010 CHINA
Shanghai adopts new measures against real estate speculation
05/27/2005 CHINA
Important decline in property development and car sales
04/29/2005 CHINA
Inflation creeps up on China's economy
10/02/2006 CHINA
Corruption probe in Shanghai netting real estate developers
01/19/2010 CHINA
In 2009, property sales reach 4.4 trillion yuan

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