China’s first property taxes kick in

China on Friday launched a long-awaited property tax in two of the country’s biggest cities, but the mayor of Chongqing in the southwest warned the measure was not a cure-all for soaring prices. People buying higher-end second homes in Shanghai, China’s wealthiest city, and Chongqing, home to 30 million people and the country’s fastest growing municipality, now have to pay a 0.4-1 .2% annual tax, officials said. Earlier this week, the government hiked the minimum down-payment for second homes to 60% from 50% and ordered authorities to rein in property prices as it moved to quell growing public angst about high real estate costs.

But Chongqing Mayor Huang Qifan said the pilot tax programmes were not aimed at clipping the soaring housing prices that are a top consumer concern across the country.

“People will ask if I think the real estate tax will definitely bring property prices down.... No one believes the property tax will hit the nail on the head and bring prices down,” Huang told a news conference late Thursday.

He estimated the levy would generate 150 million yuan ($22.8 million) in revenue for the municipal government this year, according to an official transcript , although state media cited him as saying 200 million yuan. The taxes will have limited impact on curbing property prices, but they will affect the speculators who helped push up housing costs, said Chen Sheng, deputy director at China Index Academy, a property research firm.

“It is a historic breakthrough because it is the first time in China that people need to pay for holding real estate assets,” Chen said.

Michael Klibaner, head of China research for property company Jones Lang LaSalle, said the ultimate aim of the tax was to establish a way for the government to generate long-term tax revenue from property holdings.

“Previously there was very little holding cost for residential property because many people paid 100% cash for these properties. Now the holding cost is no longer zero,” Klibaner told here.

“When the holding cost is zero, it’s very easy to let these homes sit idle. It doesn’t cost you anything to let them sit there. It’s like gold,” he said.