Balky local governments greatly undermined the central government's macro control policies in the real estate sector because they failed to fully implement government directives, the Xinhua news agency reported on January 7.

The central policies aimed at curbing property prices; they range from encouraging the building of economically affordable housing to taxing capital gains on property sales.

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Yet housing prices just kept soaring in many places.

According to the Wenhui Daily on January 8, in 70 large- and medium-sized cities last year, the monthly rate of increase for the price of newly built apartment buildings remained at no less than 5.8 percent in the first 11 months.

The rapid increase was not only seen in the relatively affluent east coast, but also in many not so developed cities, including Hohhot in Inner Mongolia Autonomous Region, and Nanning in Guangxi Zhuang Autonomous Region.

Although the central policies were well designed and targeted, without cooperation from all local governments, most worked little, if at all, in practice.

A typical example is the distortion of the capital gains tax policy issued last July.

The new policy stipulated that from last August, all gains on individual housing transactions are subject to a 20 percent individual income tax.

By this the government aims to discourage speculation in housing transactions.

Yet, according to some local rules, if a seller fails to document the property's original price, the tax bureau would tax the transactions at 3 percent of the total revenue from the sale.

The incentive is not to disclose the original cost.

In practice, therefore, many home sellers try not to provide documentation on the original price of their property.

As a result, almost all the transactions were taxed on no more than 3 percent of the total revenue from the sale, thus undermining the policy.

In fact, the capital gains tax is nothing new. It was enacted as part of China's 1994 personal income tax law, but many local governments have never collected it.

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