China shelves US-like property tax to save likes of Evergrande, shore up growth - South China Morning Post

Beijing has shelved the nationwide implementation of a controversial property tax, as China’s policymakers are now preoccupied with unleashing property-purchasing potential to help distressed developers and shore up economic growth.

The US-like property tax did not show up in the five-year lawmaking plan released on Thursday by the Standing Committee of the National People’s Congress, the country’s top legislature.

Instead, boosting the digital economy and ensuring financial stability have been elevated as priorities in the legislative agenda.

Yi Xianrong, a former researcher with the Chinese Academy of Social Sciences, said Beijing is trying to boost consumer confidence and improve expectations, but shelving the property tax “will have little impact on the property market”.

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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.

The economy is recovering slowly, but the disposable income of residents is continuing to decline

Zhan Cheng, Shenzhen

Zhan Cheng, the 33-year-old manager of a private firm in Shenzhen, does not expect the move to improve market confidence nor household purchasing power after they took such a big hit during the pandemic.

“The economy is recovering slowly, but the disposable income of residents is continuing to decline,” he said. “For homebuyers, this is undoubtedly a huge expenditure.”

China’s national household debt, three-quarters of which is from property, reached 63.5 per cent of the national gross domestic product (GDP) in the second quarter, according to the National Institution for Finance and Development.

That marked a massive rise from 17.9 per cent in late 2008, and it is approaching the 65 per cent red line of the International Monetary Fund, reflecting a rise in financial risks.

Are China’s houses for speculating? Beijing lets real estate off leash

Lawmakers proposed the property-tax legislation five years ago, after a small pilot programme started in 2011 to levy such a tax on certain residential property owners in southwest China’s Chongqing municipality and in the commercial hub of Shanghai.

China’s finance ministry 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 State Council could eventually opt to extend property-tax pilot programmes in more cities.

Real estate remains a pillar industry of China’s US$18 trillion economy. Its added value stood at 7.3 trillion yuan (US$1 trillion) last year, accounting for 6.1 per cent of the national GDP.

However, after more than 20 years of construction, China has more homes and flats than its people can live in.

National property investment fell 8.5 per cent from a year earlier in the first seven months of the year, and residential investment was down 7.6 per cent, according to government data.

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.

And speculation is rising that home-purchasing restrictions could be removed in first-tier cities such as Beijing, Shanghai, Shenzhen and Guangzhou.

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