Chongqing and Shanghai Introduce New Property Tax

Shanghai and Chongqing have introduced China’s first-ever property tax for second-home buyers, part of a series of government measures to curb soaring prices and real-estate speculation. The taxes target high-end newly purchased second homes and will require buyers to pay between 0.4 to 1.2 percent of the total property price. The taxes kick in with immediate effect from today (Friday, January 28, 2011).

The taxes differ, however, in their application. In Shanghai, second-home buyers will pay a tax of 0.6 percent. If values of homes are less than double that of average housing prices, buyers need only pay 0.4 percent. Taxes will be more staggered in Chongqing. Buyers of new second homes will pay a tax of 0.5 percent if homes are valued at two to three times average housing prices.

Homes valued at three to four times the average prices will be taxed 1 percent, with the highest tax not exceeding 1.2 percent. All villas and town houses in Chongqing will be taxed as well. Non-local residents, without any job or investment in Chongqing, will also be taxed when they buy second homes.

“The property tax can be considered a new measure to adjust demand and supply, curb property speculation and squeeze the housing bubble,” Chen Guoqiang, deputy chief of the China Real Estate Society, said.

The announcement followed the State Council’s latest tightening regulation publicized on Wednesday to cool down the housing market, including raising the down payment for second-home buyers to 60 percent from 50 percent.

Huang Qifan, mayor of Chongqing, said RMB200 million (US$30.38 million) in property tax is expected to be collected this year.

The two city governments told the media that the property tax is aimed to help narrow the wealth gap, guide property purchases in the right direction and better distribute housing resources. The tax collected will be used in the construction of government-subsidized affordable housing projects.

Should the taxes prove to have the desired effect, they may be introduced on a national basis at a later date – a situation which may fuel purchases in other Chinese cities as investors rush to buy before any such introduction. It is also a matter of some debate as to whether or not the taxes introduced are high enough to make any real impact.

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