Hao Zhou

The View | Why Beijing will endure property tax’s drag on housing market

The government’s pursuit of ‘common prosperity’ and reduced inequality mean a further slowdown in the housing market is not a deal-breaker

Some fundamental changes are deemed more critical for the country’s future and will better position it against the changing demographic and geopolitical landscape

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Residential buildings in Yumen, Gansu province, on March 31. While China is expected to approve plans for a nationwide property tax, its roll-out is expected to be graduate with several pilot programmes. Photo: Bloomberg

Hao Zhou

Published: 4:30am, 3 Nov 2021Updated: 5:01am, 3 Nov 2021

While China’s property sector is already on a downward trend, plans to expand the property tax will probably only add to the housing market’s woes. The market is wondering why Beijing is sticking to its property tightening amid intensifying economic headwinds and, more importantly, whether further deterioration in the property market will endanger financial stability.

There have been rumours about a new round of property tax pilot programmes for some time now. President Xi Jinping’s essay in Qiushi, a journal controlled by the Communist Party, appears to have given this policy a final push.

In the essay, Xi said: “We should actively and steadily promote the legislation and reform of real estate tax and do a good job in the pilot work.”

The government’s tax reform will be set against the backdrop of Chinese authorities prioritising “common prosperity” in their political agenda.

The first trial run for the property tax took place in Shanghai and Chongqing in 2011 and only affected a small group of people. The tax was primarily focused on those with second homes or who live in luxury properties.

While there is little data available, it appears property tax receipts contribute little to government revenue. In Shanghai, for example, property tax revenue in 2020 was about 20 billion yuan (US$3.1 billion), only accounting for about 1.2 per cent of total tax revenue. Property tax revenue in Shanghai also includes tax paid by businesses, so payments from households were even smaller.