Property tax trials yielding meager results, say analysts

He said he believes the best choice for tax reform is to choose another one or two cities to extend the trial and to accelerate property tax law legislation.

Macdonald said it is possible that both Shanghai and Chongqing could begin taxing pre-owned houses in the coming years, but there are a number of obstacles to overcome.

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"After more than a decade of prosperous development, the trade volume of new homes is accounting for a descending proportion of total home transactions. Therefore, if the property tax can extend to pre-owned homes at a higher rate, it will greatly help cool down speculative demand," said Zhou from Jones Lang LaSalle.

He also noted the actual property tax of Shanghai was a mere 0.5 percent of the purchase cost of a property every year (this cost doesn't change in spite of the soaring home prices year-on-year), but the average tax in the United States is between 1 and 2 percent of a property's yearly valuation price.

The property tax is not designed as a replacement for current government policies, but it is a tax designed to address certain imbalances in the property market and generate tax revenues for local governments to support local services and communities, Macdonald said.

While the implementation of the tax might have the effect of cooling the property market, this is of a secondary concern to the redressing of this imbalance in the market. While the consequent cooling of the market after implementation may encourage the government to loosen some of the other restrictions, it does not mean that this should be viewed as a replacement to existing regulations, he added.

"The strict execution of the central government policy on pre-owned home transactions could be more effective than a brand-new property tax," said Chen Jie from Shanghai University of Finance and Economics.

The central government announced on March 1, 2013, a levy of a 20 percent tax on gains on pre-owned house sales. Analysts regarded the policy as an effective measure to cool down speculative demand.

Meanwhile, Chen also suggested raising the tax on empty units that are not primary homes. Under the primary home system, owners of housing that is verified as a non-primary home would have to pay a large amount of tax every year for the property being empty.

"Homeowners will want to get rid of their empty housing as soon as possible once they realize the cost for stockpiling property will become very expensive," said Chen.

But Chen also said the levy of property taxes should not be a new burden for Chinese people. "There must be a relevant public financing system reform to make sure the tax collected is wisely spent in the best interests of the people."

 

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