The unlikely dream of China’s property tax

China’s finance ministry is working on legislation for a direct property tax, according to comments from the ministry’s tax policy official on Wednesday. But the idea has been around for more than a decade – the Chinese equivalent of a New Year’s resolution that never quite comes to fruition.

A property tax has merit as a means of weaning the nation from its dependence on housing. But the overheated real estate market has become an essential crutch for tax revenues. And despite a recent overhaul in the capital market, there is still no clear alternative destination for the bulk of China’s huge household savings. This suggests that any actual implementation is likely to be limited.

The country’s experiences with property taxes have been lackluster. The pilot projects in Shanghai and Chongqing in 2011 differed considerably in their details, but had in common to cover little more than part of the local market and to generate equivalent revenues: 0.5% of total revenues of Shanghai, 0 , 3% of those in Chongqing.

Two decisive factors govern the Chinese real estate market. There’s the push by local governments, which increasingly need money from land sales through a tax system that gives Beijing a tight grip on tax revenue but forces local governments to cover most of it. spending. And there is the appeal of households with high savings and little else to invest in: many financial products are notoriously unreliable, and capital controls prevent most people from investing. less speculative abroad.

It is quite possible that a much more aggressive property tax would tear the rug out of this framework, revealing that prices are only held back by speculative demand. In 100 of China’s largest cities, gross rental yields are on average just over 2% according to the Wind data service – and the actual figure could be even lower, given limited rental markets in much of the country. country.


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