New regime paves the way for property tax

Proposed property information registration system will establish order in real estate industry

China has vowed to build a complete property registration system and set up a fully operational information platform for property registration under the Ministry of Land and Resources by 2017. The move is expected to have a profound impact on the real estate industry.

The system, expected to become an integral part of the country's property protection system, must be based on thorough and unified information on registration of landed assets such as plots and buildings, and forestland.

Information about such assets are now scattered among different government departments. For example, the Ministry of Housing and Urban-Rural Development provides information on housing, and the Ministry of Land and Resources does so on urban and rural land use. Moreover, the lack of proper information sharing among different regions hampers countrywide property regulations and transactions.

Although the information registration system is not directly targeted at the real estate market, it indeed will have an impact on the sector. The government move has the potential to force some corrupt officials to dump their properties, leading to a drop in housing prices; it is also expected to expedite the launch of property tax across the country, which will deal a heavy blow to the real estate industry.

As China's anti-corruption campaign presses on, some exposed corrupt officials have been found to own many apartments and houses. For example, the director of a coal bureau in a Shanxi county owns 35 properties, most of which were bought using illegally earned money, says a Xinhua report. Since the estimated number of properties held by officials at various levels is huge, the new property information registration rules could force them to sell many of their apartments and houses and thus expose them as being corrupt.

Besides, given the huge number of such properties, the sell-off could help drive down property prices. No one could calculate the real impact, though, because of lack of foolproof information.

A fall in real estate prices in the next one or two years, however, should not be credited to the possible property sell-off by corrupt officials. Why? After 10 years of spectacular growth, China's real estate market has reached a stage where it is difficult for speculators to continue making easy profit. As the economy cools down and the risk of default increases, banks are becoming more reluctant to lend to homebuyers. And with housing prices reaching a level that is almost unaffordable for ordinary people, the market is flooded by oversupply. These are real factors that will make housing prices fall.

The real importance of the property information registration system lies in its role as a preparatory step for the government to impose a property tax, which will increase the cost of land holding, deal a blow to speculators and provide a new source of revenue for debt-ridden local governments.

Speculation has been rife on when the property tax will be imposed. Technically, it is hard to levy the tax without having complete and accurate information on landed properties. So, such a tax can be introduced throughout the country only after a complete property information registration system is set up by 2017.

The move will also favor local governments. Until now, they have relied heavily on land sales and property construction and transaction taxes for revenue, thus creating serious problems, like huge piles of debt, for themselves. As a result, local governments have been complaining about reduced revenues owing to the cooling down of the real estate market.

But once a property tax is introduced, local governments will have a new and stable source of income, and enough reason not to depend on land sales to balance their exchequers, which will profoundly change the way local governments function.

The author is a senior writer with China Daily. Contact the writer at xinzhiming@chinadaily.com.cn