China Curbs Property Speculation to Avert Real Estate Bubble

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Mar. 8 – Whether or not it is an appropriate time to launch a property tax and curb skyrocketing housing prices in China has aroused hot debate at the annual sessions of the National People’s Congress, China’s top legislature, and the Chinese People’s Political Consultative Conference, the top advisory body.

China reintroduced a nationwide real estate sales tax last November in an attempt to reduce speculation and cool the bubbling property market after price rises accelerated across the country.

The new policy is the first concrete response from Beijing to growing fears that an unsustainable bubble has formed in the real estate market. Concerns over property bubbles have been voiced by a wide range of commentators in China in recent weeks, including prominent real estate developers.

At China’s 2010 parliament session, advocates for a property tax levy claim that such actions will increase the costs and risks of buying real estate, thereby abating the speculative purchases of relatively wealthy individuals. Afterwards, housing supplies would become more rational, and move prices towards a reasonable level.

Some also expect that a property tax would help decouple local governments’ fiscal revenues from land sales, which are a major source of income for local governments, especially when other sources decreased with the global downturn..

The real estate sector in China contributes about 20 percent of fixed asset investment and 10 percent of GDP. This has raised questions and sparked controversy as to whether or not the sector has “kidnapped” China’s economy with the government unwilling to take tough measures to curb home prices out of fear it will pull down GDP growth.

Some deputies and advisors claim that it is still necessary for China to use real estate as reinforcement, especially when the global economy hasn’t fully recovered from the financial crisis. They fear if property tax comes too early, it will harm China’s economy.

Meanwhile, some say property tax serves as a kind of double tax to the existing land appreciation tax, land transfer fee, urban real estate tax, and others costs.

Gu Yunchang, vice chairman and secretary general of the China Real Estate Association, recommends faster development of the real economy and financial markets, so that there will be more alternatives for investment that can attract money away from the housing market.