Property Tax Could be Complicated

If you thought buying property in China was expensive enough, there's a possibility prices could rise even higher if the government decides to go ahead a much talked about plan of introducing a residential property tax. Long term, the hope is that the new tax will cool China's ever heating property market. But implementing such a huge change is easier said than done, as CRI's Dominic Swire reports.

Walking into an apartment that you own is the dream of many Chinese. But this dream has been turning into a nightmare lately as the ever growing desire to buy property has contributed towards the real estate sector overheating.

Despite government measures to cool the real estate sector, house prices continue to rise. The last six months have seen an average property price increase of 9.4% year on year. Wang Lina is a Research Professor at the Chinese Academy of Social Sciences. She says China's overheating real estate market is partly a result of the global financial crisis.

"Enterprises find that since the world economy is in a depression they can't find good profit making opportunities so they like to put their money into the real estate sector in China and make quick profits. 12.08 So consumers, they find that in high inflation, you have negative returns if you put the money in the bank. So the incentive is to buy more properties."

One solution to this problem, which was discussed at the recent central economic work conference, is to introduce a tax for residential property. The idea is to increase the cost of holding property reducing the demand for new homes. But, says Andy Zhang, a real estate expert at global property firm Cushman and Wakefield, this is easier said than done.

"Actually, it's a very complicated issue. It might change the whole pricing system. As buyer of property you have paid one tax in one go, and now there's another tax coming. How will you justify this?"

Another consideration is how to make sure the new tax is focused on those the government wants to target. Andy Zhang again.

"There are still a lot of people who are genuine consumers of the residential property market and they should not be affected; this introduction of tax should not increase the burden of this class of people."

Although no official announcements have been issued by the government, a property tax trial is expected to be introduced in Shanghai and Chongqing within the first half of 2011.

For CRI, I'm Dominic Swire.