Real estate taxes to be developed

China will speed up legislation for tax collection in the real estate sector, according to specific reform plans released Friday by the Communist Party of China (CPC) following the four-day plenum, an important step to let the property market run in a healthy way, rather than merely suppressing home prices, analysts said Sunday. [Special report]

Media reports over the weekend, following the Third Plenary Session of the 18th CPC Central Committee, speculated that the legislation could include the long-expected property tax, which might help to cool down the over-heated real estate market.

"Legislation for tax collection in the real estate sector will cover all types of taxes in the industry," including capital gains tax and value added tax for land use, Jia Kang, director of the Research Institute for Fiscal Science with the Ministry of Finance, told the Global Times Sunday.

"It is also likely that the long-expected property tax will be one of the major focuses of the legislation," Jia noted.

"Pushing forward with legislation for taxes collected in the property sector could avoid some arbitrary tax collection for both developers and homebuyers," Chen Baocun, director of the real estate department with the Asian-Pacific City research institute, told the Global Times Sunday.

Chen said China currently has dozens of taxes and fees for both developers and homebuyers, and legislation for this sector could let the market operate in a healthier and more standardized way.

With regard to legislation for the long-awaited property tax, analysts said it was a sustainable measure that could avoid excessive local government reliance on revenue from land sales.

In China, local governments largely depend on land sale revenues, creating the incentive to raise both land and property prices as high as possible.

"If the property tax gradually replaces land sales as a source of revenue, it will be a wise long-term strategy for the local governments," Fan Xiaochong, vice president of Sunshine 100 Real Estate Group, told the Global Times Sunday.

"For the developers, they won't have to hoard land and wait for apartment and land prices to rise. Instead they can speed up development of the land, if local governments do not need to boost land prices and prices become more stable," Fan noted.

Although property tax is common in Western countries such as the US, China didn't launch such a tax until 2011, when Shanghai Municipality and Chongqing Municipality began a trial program levying property tax on existing homes.

However, challenges remain for property tax collection nationwide, as home owners are concerned about a potentially heavier tax burden, said Fan.

There are also concerns that the tax could boost rental prices, according to Fan.

Currently in Shanghai and Chongqing, the property tax is only imposed on apartments that were purchased after 2011.

Fan said the tax should be collected only on newly built apartments during the initial period, as "expansion to all homeowners nationwide in a short period is too complicated."

The detailed reform plans also announced that a unified data platform for all homes across the country would be set up, which analysts said will be helpful in the expansion of the property tax nationwide.