REPEAT: MNI: China's Proposed Property Tax Won't Slow Sales

Repeats Story Initially Transmitted at 09:10 GMT Mar 9/04:10 EST Mar 9

     BEIJING (MNI) - China's legislative agenda to create a new category of

property tax for residential homes may not reduce property sales and investment,

MNI has concluded after conversations with analysts and officials.

     China's Ministry of Finance said Wednesday the government is stepping up

drafting and improving laws on establishing a residential property tax. This

confirmed previous rumors that preparations are made for a possible legislative

move, with the comments coming in a press conference during the country's

two-week parliamentary meetings. 

     As a new tax for the vast Chinese population, its impact on growth in the

property sector, however, may not be too big, at least in the first two to three

years.

     China's government is working to create the levy in order to tax

residential property, aiming to increase the cost of holding additional homes,

thus reducing speculation in the property market. 

     In theory, demand for houses, especially demand from speculators seeking a

fast buck, may fall due to the higher costs. Given the substantial number of

Chinese whose disposable income surged in recent years hoard houses for

investment, such demand could be huge.

--NO MARKET HIT

     However, at least in the short run, given the considerable potential margin

for speculators even if a residential property tax arrives, demand for houses

from this group should hold up.

     "Whether the residential property tax will be created would not affect

demand for homes that much," Zhang Hongwei, director at research department of

Shanghai-based Tospur Consultancy, said in an interview with MNI.

     Zhang said property sales are more related to China's ongoing urbanization

-- the government target is to reach 60% in 2020 and 70% in 2030. Based on these

numbers, demand for residential housing, plus other demand from first-time

home-buyers and purchasers switching to bigger homes, will still be robust.

     Yang Hongxu, deputy head of the research department at E-house Real Estate

Research Institute, told MNI the coming residential property tax will negatively

impact demand for houses, but only modestly. It will also have a modest drag

down effect on housing price growth, property sales and investment, Yang said.

     Based on current market sentiment and sources whom MNI talked with, a new

residential property tax will exert only a minimal influence on overall property

investment. With commercial property investment still comprising a large part of

Chinese market, the transitioning of the effect to property investment would be

slow. However, high-end and speculative demand would be most affected.

--PROPERTY DEVELOPERS

     But there's no doubt that the new tax category will help put China's

property market on a more stable footing. As Jia Kang, former director of the

Finance Science Research Institute of the Ministry of Finance, said in an

interview with MNI, the residential property tax would serve as a fundamental

component for long-term sustainable development of the Chinese property market.

     Jia noted in the interview that discussions on details of the property tax

law at this point were ongoing and only when the legislation process starts will

discussions become more meaningful and be turned into reality.

--MNI Beijing Bureau; +86 (10) 8532-5998; email: iris.ouyang@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com