As the government's latest wave of macro-control measures aimed at the housing sector unfolds, the debate about the immovable property tax is once again surfacing.

 

Although experts and analysts generally agree that the proposed tax could, to some extent, curb property speculation and rein in rising prices, and be applied sooner, they are divergent on how it should be levied.

 

Taxation policy has long been viewed as an effective tool to adjust the real estate market.

 

In a State Council executive meeting on May 17, the central government vowed to use a mix of credit, tax and land policy to cool the currently overheated housing market.

 

As of June 1, a 5.5 percent transaction tax is now being charged to people who sell their property within five years of purchase a policy many say is designed to discourage investment-oriented property demand.

 

But many experts say the immovable property tax, which is imposed on owners of properties, is more effective than the transaction tax to restrain property speculation.

 

"The property tax is an indispensable instrument to drive out excessive housing demand resulting from speculation and investment purposes," said Yi Xianrong, a researcher with the Chinese Academy of Social Sciences.

 

The property tax would increase property investors' costs, which would make some think twice before investing in property, Yi explained.

 

And some experts say the property tax could also help drive down housing prices.

 

Currently the land fee, which some estimate accounts for 40 percent of developers' costs, is calculated into construction costs, an arrangement that experts say leads to high property prices.

 

The developers will not have to pay the land fee if the property tax is levied, which is likely to result in the property price falling, experts say.

 

However, there are concerns that although homebuyers will pay less for property, they will have to pay more to maintain their houses, as they will have to pay the tax.

 

"It (the imposition of immovable property tax) will become a little bit easier for people to buy houses, but it will likely make it harder to maintain them," said a researcher with the Development Research Center (DRC), a government think tank.

 

"So the tax regime should be designed carefully in order not to add unbearable costs on to ordinary homeowners," the researcher added, declining to be named.

 

But experts are divided about how and when the proposed tax should be levied, such as on which property types the tax should be levied.

 

All household residential properties should be included in the tax category, according to a research paper on immovable property tax released by a cabinet-affiliated think tank last week.

 

The paper, jointly prepared by the DRC of the State Council and the US Lincoln Institute of Land Policy, a non-profit organization, proposed that a certain amount of household residential property should be exempted from the tax, in a bid to avoid adding to the living expenses of homebuyers.

 

The paper also proposed that properties used by government, military and diplomatic establishments, and other public property, should be exempted from the property tax.

 

And land used for agriculture and farmers' living quarters should also be exempted from the property tax, according to the research paper, which recommends the immovable property tax rate be set between 0.3 percent and 0.8 percent.

 

In comparison, in Vancouver, Canada, where property tax is a main source of local revenue, the property tax rate is set between 0.3 percent and 36 percent.

 

The differential tax rate is designed to keep the income gap from widening.

 

Property tax will be reduced by 30 percent to 50 percent for properties used by those older than 65, or retired servicemen or disabled people. Tax on other types of properties will be higher than 10 percent.

 

But some experts believe that the immovable property tax should largely be targeting those high-earners, "as this tax is an important means to balance the income gap," said Yin Bocheng, a researcher with the Finance Studies Centre at Fudan University.

 

In Vancouver, a much higher tax rate is applied on the second homes of its local citizens.

 

Properties for rental, villas and high-end apartments should be the first batch of properties to be levied with the immovable property tax, suggested Jia Kang, a researcher with a Ministry of Finance-affiliated research institute.

 

Though disagreement remains on taxable properties, experts agree that an adequate infrastructure should be put in place first if the property tax is to be well-implemented and effective.

 

"Before the tax is levied, there should be some basic infrastructure such as a detailed and accurate property registration database and a scientific land valuation method," said Yi Xianrong.

 

"Only when these preparations are done can the property tax be implemented efficiently," said Yi.

 

"The imposition of immovable property tax is a very complex issue," Xie Fuzhan, deputy director of the DRC, said at a symposium last week. "Only with good design can we reduce any possible glitches when the tax is really applied."

 

However, the need for prudence and adequate infrastructure should not constitute an excuse to indefinitely delay the imposition of immovable property tax, Yi stressed.

 

(China Daily June 6, 2006)

Debate over Property Tax Heats up

 

As the government's latest wave of macro-control measures aimed at the housing sector unfolds, the debate about the immovable property tax is once again surfacing.

 

Although experts and analysts generally agree that the proposed tax could, to some extent, curb property speculation and rein in rising prices, and be applied sooner, they are divergent on how it should be levied.

 

Taxation policy has long been viewed as an effective tool to adjust the real estate market.

 

In a State Council executive meeting on May 17, the central government vowed to use a mix of credit, tax and land policy to cool the currently overheated housing market.

 

As of June 1, a 5.5 percent transaction tax is now being charged to people who sell their property within five years of purchase a policy many say is designed to discourage investment-oriented property demand.

 

But many experts say the immovable property tax, which is imposed on owners of properties, is more effective than the transaction tax to restrain property speculation.

 

"The property tax is an indispensable instrument to drive out excessive housing demand resulting from speculation and investment purposes," said Yi Xianrong, a researcher with the Chinese Academy of Social Sciences.

 

The property tax would increase property investors' costs, which would make some think twice before investing in property, Yi explained.

 

And some experts say the property tax could also help drive down housing prices.

 

Currently the land fee, which some estimate accounts for 40 percent of developers' costs, is calculated into construction costs, an arrangement that experts say leads to high property prices.

 

The developers will not have to pay the land fee if the property tax is levied, which is likely to result in the property price falling, experts say.

 

However, there are concerns that although homebuyers will pay less for property, they will have to pay more to maintain their houses, as they will have to pay the tax.

 

"It (the imposition of immovable property tax) will become a little bit easier for people to buy houses, but it will likely make it harder to maintain them," said a researcher with the Development Research Center (DRC), a government think tank.

 

"So the tax regime should be designed carefully in order not to add unbearable costs on to ordinary homeowners," the researcher added, declining to be named.

 

But experts are divided about how and when the proposed tax should be levied, such as on which property types the tax should be levied.

 

All household residential properties should be included in the tax category, according to a research paper on immovable property tax released by a cabinet-affiliated think tank last week.

 

The paper, jointly prepared by the DRC of the State Council and the US Lincoln Institute of Land Policy, a non-profit organization, proposed that a certain amount of household residential property should be exempted from the tax, in a bid to avoid adding to the living expenses of homebuyers.

 

The paper also proposed that properties used by government, military and diplomatic establishments, and other public property, should be exempted from the property tax.

 

And land used for agriculture and farmers' living quarters should also be exempted from the property tax, according to the research paper, which recommends the immovable property tax rate be set between 0.3 percent and 0.8 percent.

 

In comparison, in Vancouver, Canada, where property tax is a main source of local revenue, the property tax rate is set between 0.3 percent and 36 percent.

 

The differential tax rate is designed to keep the income gap from widening.

 

Property tax will be reduced by 30 percent to 50 percent for properties used by those older than 65, or retired servicemen or disabled people. Tax on other types of properties will be higher than 10 percent.

 

But some experts believe that the immovable property tax should largely be targeting those high-earners, "as this tax is an important means to balance the income gap," said Yin Bocheng, a researcher with the Finance Studies Centre at Fudan University.

 

In Vancouver, a much higher tax rate is applied on the second homes of its local citizens.

 

Properties for rental, villas and high-end apartments should be the first batch of properties to be levied with the immovable property tax, suggested Jia Kang, a researcher with a Ministry of Finance-affiliated research institute.

 

Though disagreement remains on taxable properties, experts agree that an adequate infrastructure should be put in place first if the property tax is to be well-implemented and effective.

 

"Before the tax is levied, there should be some basic infrastructure such as a detailed and accurate property registration database and a scientific land valuation method," said Yi Xianrong.

 

"Only when these preparations are done can the property tax be implemented efficiently," said Yi.

 

"The imposition of immovable property tax is a very complex issue," Xie Fuzhan, deputy director of the DRC, said at a symposium last week. "Only with good design can we reduce any possible glitches when the tax is really applied."

 

However, the need for prudence and adequate infrastructure should not constitute an excuse to indefinitely delay the imposition of immovable property tax, Yi stressed.

 

(China Daily June 6, 2006)