Newsweek Asia

Recently,G20A meeting of finance ministers and central bank governors was held in Chengdu, Sichuan. At a high-level seminar on taxation, Chinese Finance Minister Lou Jiwei stated:"Unfortunately, reforms to the real estate tax and personal income tax have not yet been implemented, due to limited data collection capabilities and resistance stemming from the need to realign vested interests. This is a challenge, and it is our task."

Based on some recent official..."Without Hesitation"The policy direction for implementing the real estate tax has been set, and this stems from2003The real estate tax, which has been in the works since [year], has once again become a hot-button issue and a topic of intense public debate.

What is a property tax?

Following the 2008 global financial crisis, China’s housing prices began to enter a"Phase of Skyrocketing Prices", In order to curb the rapid rise in housing prices, the government introduced a housing market policy called"Property Tax". However, the actual results of this property tax have been less than ideal. At the same time, due to various factors—including technical limitations and conflicts of interest—the new administration has decided to make adjustments to various aspects of the property tax and implement a new"Real Estate Tax"A system to replace the property tax.

Compared to property tax—which is levied on property owners based on specific criteria—real estate tax is more complex. Conceptually, real estate tax encompasses a range of tax categories, including business tax on the real estate industry, corporate income tax, individual income tax, property tax, urban land use tax, urban real estate tax, stamp tax, and land appreciation tax, among others. Therefore, when referring to"Real Estate Tax Reform"rather than"Property Tax Reform"In this context, the wording implies that this is a comprehensive reform. To put it simply, the real estate tax will no longer apply only to houses; its scope has broadened.

Assuming that the real estate tax is successfully implemented, and based on internationally accepted1.5%Calculating tax rates: Taking Shenzhen as an example, if a family of three purchases a home in Futian District, Shenzhen,100Total square meters of housing80010,000 yuan, so the monthly tax payable is 10,000 yuan (for a total of12(10,000 yuan) in property tax. However, the relevant authorities may adjust the tax rate based on actual circumstances, such as by applying the rate used in Shanghai0.6%Based on the pilot program, a family of three in Shenzhen can also purchase one100square meters, total800For a house worth 10,000 yuan, the total annual property tax payable is4.810,000, per month4000Dollars.

The government believes that the requirement to pay property tax annually will curb the commercial role of housing and, in essence, restore housing to its residential function. However, can the imposition of property tax truly and effectively improve the real estate market?

No matter what kind of tax it is, it’s the ordinary people who end up paying for it.

Can a property tax effectively regulate the real estate market? Judging from the current pilot programs, the results have been negligible. The property tax reform inevitably brings to mind the situation from a few years ago, when..."The "Five National Measures""The new policy—the "Five National Measures"—aims to restrict the supply of resale homes by raising the tax rate on them, with the goal of restoring housing to its fundamental purpose; however,"The "Five National Measures""After a whirlwind six months, it was almost..."Malfunction". Five months after the "Five National Measures" were introduced, the volume of many second-hand home transactions began to rise steadily. Not only that, but in the same year,9In [Month], the year-over-year increase in Beijing’s used-home price index reached240.%/square meters. In the face of the essential housing demand in major cities, this approach of controlling the real estate market through tax increases has failed across the board. Not only did the introduction of the “Five National Measures” fail to restore housing to its original residential function, but the increase in taxes on resale homes actually raised the cost of purchasing them. As a result, many buyers began turning their attention to new homes, causing prices for new homes to skyrocket as well; Not only that, but with housing prices rising sharply, more people began considering renting. In a market where supply falls short of demand, rental prices have continued to climb in tandem. So, this situation stemming from"favorable"The policy on departure—what exactly is it?"favorable"Which demographic?

Regardless of the type of tax, any tax increase is bound to lead to higher costs. Given that the traditional family-oriented culture is deeply rooted in the hearts of the Chinese people, and that the demand for housing in China—a market driven by essential needs—far exceeds that of other countries, buyers lack bargaining power, and ultimately, consumers are left to silently shoulder these additional costs.

What Are the Obstacles to Introducing a Real Estate Tax?

existG20At a high-level seminar on taxation held during the meeting of finance ministers and central bank governors, Finance Minister Lou Jiwei stated that the delay in implementing the real estate tax stems from obstruction by interest groups. Although he did not explicitly identify which interest groups are interfering with the implementation of the new policy, given the current situation, one of the hurdles that the real estate tax cannot overcome is undoubtedly public opinion.

There are currently no accurate public opinion polls on the real estate tax, but online sentiment regarding this policy is almost entirely negative. The failure of the tax increase on second-hand homes under the “Five Measures” has already severely undermined the public’s confidence in the government’s ability to regulate the real estate market; therefore, most people are undoubtedly skeptical that the new tax will curb the chaos in the real estate sector.

Many private citizens with professional expertise believe that since the government has already collected the corresponding usage fees in advance through land transfer fees, there is no legal basis for levying a property tax on top of that. The government has already collected relevant fees for land use rights and should not collect them again. In fact, property taxes in mainland China are already extremely burdensome. The housing prices paid by consumers include deed tax, stamp tax, property tax, land appreciation tax, business tax, personal income tax, and land transfer fees. According to real estate developers, from the time a developer acquires land until a homeowner takes possession or resells the property, government revenue accounts for50%That’s all. And now they want to introduce a new property tax—for those who actually have to pay it, this is just adding fuel to the fire!

Most consumers cannot understand the approach taken by countries that, despite already high prices, attempt to regulate the market by raising taxes, which in turn drives up costs."If everyone can't afford to buy, the housing market will stabilize."Given this logic, even some tax professionals question whether the policymakers possess a basic understanding of the market. For China’s low-income population, it is clearly undesirable to see a new tax increase housing costs; for the middle class, it is not uncommon to plan to purchase a second home to improve living conditions and quality of life. The introduction of the real estate tax has effectively alienated virtually the entire middle class and low-income groups across China.

If we’re going to align with international standards, let’s do it thoroughly.

China's real estate tax originated abroad; among many capitalist countries, there are taxes similar to China's real estate tax"Property Tax"As a long-standing traditional tax, China’s real estate tax system is largely modeled after property tax systems in other countries.2010In recent years, some of China’s policies have increasingly sought to align with international standards, with the country adopting and experimenting with certain foreign tax and fee systems.

Since we’re so keen on aligning with international standards, let’s do it thoroughly—for example, tax cuts and the tax system should also be aligned. Using national conditions as an excuse simply doesn’t hold water. If we’re going to discuss national conditions, then many tax policies and systems aren’t even applicable to China in the first place. Take property tax as an example. In Western countries, public resistance to property taxes is relatively low; in many Western nations, property tax revenue is primarily used to improve education, healthcare, green spaces, and public safety in the neighborhoods surrounding the properties or in the surrounding areas. Furthermore, detailed financial reports are provided annually to taxpayers, explaining where the money was spent and what results were achieved. In China, however, the majority of the public opposes the introduction of a property tax, and there is no justification for this form of double taxation. Even if a property tax were to be levied, where would the revenue go? Would it be used to build school campuses and schools?

Furthermore, as tax systems are harmonized, the relevant institutions should not lag behind. Whether in developed or developing countries, tax system development is taken very seriously in most regions and nations around the world, with a set of strict and fair review procedures in place. Furthermore, throughout this entire process, citizens have a full say in tax legislation; no new tax can be introduced without democratic consent. However, in China, the collection of19Among these corporate tax categories, one of them is16This type of individual income tax was established by a State Council regulation, and only3First, although this was enacted by the National People’s Congress, the relevant authorities have failed to respect the people’s basic rights in the matter of tax collection. While they claim that fees must align with international standards, the systems and services have not kept pace—which is hardly convincing.

How to Address an Overheated Real Estate Market

To date, the government has repeatedly called for measures to regulate the real estate market and introduced a series of policies, but none of them have been effective; on the contrary, housing prices continue to rise. The public has lost confidence and trust in the government’s efforts to regulate the real estate market, and even the introduction of a new tax such as a property tax offers no indication from any perspective that it will play any practical role in curbing the real estate market.

If you want to effectively curb the real estate market's"Riots"...The government should reduce its interference in the housing market. Experience has shown that whenever the housing market shows signs of a downturn, the government, under the guise of “regulating housing prices,” has in fact caused housing prices to rise for eight consecutive times—and there are countless examples of this. Real estate projects account for percent of50With the revenue going into the government’s coffers, buying a home has long been equated with handing money directly to the government. According to the most basic market principles, when costs rise, prices rise; no businessperson does business at a loss. If the government lacks the courage to take drastic measures to reduce taxes and lower housing market costs, then it should allow housing prices to be determined by the market and reduce or completely withdraw its intervention in the housing market. Otherwise, as long as the government continues to keep a tight grip on the housing market, no amount of recommendations or regulatory measures will amount to anything more than a non-binding, worthless check. To restore housing to its essential purpose as a place to live, the government must first reform the real estate market."Release of Animals"The

However, there are also ways to temper the rapid growth of the real estate market, such as developing diverse investment channels, and08In the wake of the financial crisis, the export industry was severely hit, and a large amount of investment shifted to the mainland. Meanwhile, the stock market remains lackluster, while the e-commerce and virtual economy sectors are booming—though they offer high returns, they also carry significant risks. Therefore, from the current perspective, real estate remains China’s best investment option, with virtually no alternatives; this sector has practically become a surefire, risk-free venture. Other industries are either monopolized by state-owned enterprises or have high barriers to entry and volatile policies—one day a county is downgraded to a district, the next day there’s a ban on walled residential compounds. Such policy constraints on certain real-economy sectors have led to concentrated and overly narrow investment. It is precisely this issue that has driven massive capital inflows into China’s real estate sector, causing the real estate market to become too tightly intertwined with the Chinese economy. This makes it difficult for the government to intervene; only by first finding a way to decouple the real estate sector from the broader economy can the government gradually control and curb the frenzied housing market. In the process of expanding diversified investment channels, it is recommended that fiscal revenue generated from local land sales be excluded from government performance evaluations. Many local officials are short-sighted and focused on quick gains; in order to rapidly produce impressive fiscal figures, they frantically sell and acquire land, completely disregarding the development of other industries. Only by shifting the government’s focus from real estate back to general industries can we effectively open up diversified investment channels.