Will property taxes dampen housing speculation?

The National Development and Reform Commission recently issued notice that a property tax is in the pipeline. Analysts expect it to be levied first on commercial real estate, followed by private luxury homes and then on residential houses. It may take three to four years to complete the process.

Some experts applaud a property tax, noting it could help prevent formation of a housing bubble and would curb soaring prices because speculators will be forced to pay higher costs for their investment.

But others doubt if the policy can dampen real estate speculation and worry that it would create an extra tax burden on average homeowners.

Experts and netizens gave their views on the websites of Guangzhou Daily and Sina.com:

PROS

Liu Huan, deputy director of the taxation school of Central University of Finance and Economics

"The introduction of a property tax can dampen speculation through higher costs on investment. Extra costs will force some to give up speculative investment, which will help make housing prices more rational.

The policy could also encourage real estate developers to build more smaller-sized apartments for ordinary people."

Yi Xianrong, researcher with Institute of Finance and Banking, Chinese Academy of Social Sciences

"Real estate taxes account for only 2.36 percent of China's total. Inadequate real estate taxation policies have resulted in serious disparities in housing markets and barely encourage real estate companies to develop mid- and low-end housing projects. Speculators who own several homes are also reluctant to sell their houses, which has distorted the supply and demand relationship in the real estate market and resulted in soaring prices."

Netizen from Shandong province

"I strongly support this policy. Some people around me own four or five apartments that are empty. That is not only a waste of resources but also pushes up housing prices. Many foreign countries have adopted property taxes - it helps reduce the disparity between the rich and the poor."

CONS

Dong Fan, director of the Real Estate Research Center, Beijing Normal University

"I think the levy of a property tax will be even more complicated than holding an Olympic Games. The policy could not increase ordinary people's incomes. On the contrary it asks them to pay.

Another challenge is to find out the real owners of each house. Some houses do not have property right certificates. Some are even owned by corrupt officials.

Property taxes can increase the government's fiscal revenues. It is a long-term policy and the tax rate is stable. It is not appropriate to use such a long-term policy as a tool to regulate the short-term real estate market."

Netizen from Zhejiang province

"In the United States, people have private ownership of land. But in China the land belongs to the State and we only have use rights for 70 years. It is totally unreasonable to copy such a policy!"

Netizen from Shanghai

"Will housing prices fall because of a property tax? That is daydreaming! The sellers will ultimately translate it into even higher prices."

Netizen from Guangxi Zhuang autonomous region

"If we have to pay tax because we own a house, then we should pay tax if we own gold and diamonds. Companies in monopoly sectors, such as telecommunications and railways, should all pay extra tax for their monopoly."

(China Daily 06/08/2009 page2)