By Wang He & Hou Yongzhi, Department of Development Strategy and Regional Economy, DRC; Shi Xiaojun, The School of Finance at Renmin University of China; Fu Li, Research Institute of Petroleum Exploration & Development

Research Report, No.275, 2021 (Total 6340) 2021-9-18

Abstract: China’s real estate industry has registered a robust development since the launch of housing reform in 1998 whereas some risks especially after the outbreak of COVID-19 epidemic have piled up. The global excessive liquidity might further aggravate the clustering of speculative funds in the real estate sector, and the imposition of property tax, however, will be conducive to curbing the swift rise of residential housing prices. We need to adhere to the principle that houses are for living in, and not for speculation and such a stance is conducive to the sound development of real estate industry. Based on the references relating to the regulation and control over China’s real estate market, this paper constructs a dynamic stochastic general equilibrium model and stimulates the effects of the policy of levying property tax on the existing residential houses. In line with the policy simulation results, although the imposition of property tax will have some impact on the stability of economic growth to some extent, it will, in the meantime, help ease the pressure brought about by the excessive global liquidity on real estate market, alleviate the local government debt risks, strengthen the risk prevention capacity of all macro-economic variables and enhance the welfare of the whole society. In general, the merits overweigh the demerits. What’s more, this paper suggests that work be done to seize the window period of a favorable landscape with relatively stable housing prices and make full preparations for the imposition of property tax in a stable and proper fashion.

Keywords: property tax, policy simulation, dynamic stochastic general equilibrium model