When homebuyers are active, property tax is one factor that weighs heavily on their mind. So, it came as little surprise when all eyes turned to a recent legislative plan that made no mention of property tax.
Some in the housing market thought the much-discussed property tax would not be levied nationwide in the near future. This in turn sparked speculation. Could people buy homes for investment purposes?
But then, when I chatted with my friends to find out, it quickly became clear that homebuyers are becoming rational. For them, it seems, a home is a place to live in, not something to be bought just to resell later for a tidy profit.
“I’d not buy a property purely for investment, even if there is no tax. But I may buy a small flat for my family to live more comfortably and conveniently,” said a friend of mine whose family currently live in a leased apartment close to her son’s middle school.
“Since property prices are unlikely to rise substantially, I think the era of buying properties purely for investment purposes is now history. The possible property tax would only be considered in case of families buying or exchanging homes for living concerns,” said another friend who has no plan to buy any residential property in the near future.
This kind of conversations came after the Standing Committee of the 14th National People’s Congress, the nation’s top legislature, did not include property tax in its recent legislative plan. It is widely believed this special taxation will not enter legislative process at least before 2025, according to a report in 21st Century Business Herald.
James Macdonald, head and senior director of Savills China research, said the exclusion of real estate tax legislation from the 14th National People’s Congress legislative plan signifies a postponement rather than a cancellation of the legislative process.
The introduction of property tax has faced delays on multiple occasions in the past, with the most recent (perceived) delay likely being attributed to the current market conditions, where imposing additional taxes or costs might not be advisable.
However, looking to the future, property taxes hold the potential to offer substantial benefits. They can establish a dependable revenue stream for local governments, encourage responsible land use and enhance funding for essential local services, said Macdonald.
Chen Sheng, president of the China Real Estate Data Academy, said now is probably not the best time to introduce property tax, given the overall market condition and the mounting pressures developers are facing. Any tax now may cause market fluctuations.
“I think legislative procedures for property tax may be more likely when developers’ operations are stabilized, and the market sees an uptrend, or at least recovers to a stable condition,” Chen said.
The main purpose of levying real estate tax is to prevent investment speculation, but in the current market situation, the principle of “houses are for living in and not for speculative investment” still applies. So, whether the relevant legislation appears in the plan or not, this will not change the real estate fundamentals, said Shaun Brodie, head of research on the China market with Cushman & Wakefield, a global real estate services firm.
The ongoing real estate policy adjustments and optimization, such as relaxing housing loans, reducing interest rates for first homes and eliminating restrictions on purchases and sales, are intended to gradually meet residents’ needs for essential housing and promote the steady and healthy development of the real estate market, Brodie said.