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Shanghai Prepares for Property Tax to Curb ‘Speculative’ Buying

Jan. 17 (Bloomberg) — Shanghai, China’s financial center, will this year prepare for a trial property tax, becoming one of the first cities in the nation to introduce the measure aimed at curbing “speculative” investment.

Mayor Han Zheng announced the move in a speech to the Municipal People’s Congress yesterday, without giving details of how much the tax would be or when it would be implemented. Shanghai and southwestern Chongqing are the two cities that will begin trials of a property tax, according to a Jan. 10 report by Nomura Holdings Inc., which expects China to selectively introduce a tax rate of about 0.8 percent.

“We will step up macro-control measures, prioritize the supply of non-luxury residential units to be owned and occupied by ordinary citizens, and prepare for the trial reform on property tax as required by the central government,” Han said.

China has pledged to speed up property tax trials to rein in surging prices that have made housing too expensive for an increasing proportion of the population. Premier Wen Jiabao said on Dec. 26 that measures control housing costs weren’t well implemented and that he would introduce more policies to crack down on speculation. China has tightened rules on down payments, suspended mortgages for third homes last year.

“A property tax will definitely come but it’s not the best way to control prices,” Fu Qi, an analyst at China Real Estate Information Corp, said. “One of the major challenges in curbing prices is that incomes are on the rise and people have nowhere to invest their money.”

Shanghai will begin building 220,000 units of subsidized housing as it pushes plans to create affordable homes, Han said in a report to the congress in Shanghai. The municipality aims to add 1 million units of subsidized housing from this year to 2015, he said.

Ordinary Citizens

Shanghai and Chongqing are expected to be the first cities to roll out property taxes in China, according to the official Xinhua News Agency and Shanghai Securities Newspaper in reports on Jan. 10. Shanghai may introduce a tax on new homes in the first quarter while the southwestern city of Chongqing may impose a luxury-property tax at the same time, they reported.

Beijing won’t join the property tax trial, the Beijing News reported today, citing Deputy Mayor Ji Lin. The Chinese capital will try to finish 100,000 units of subsidized housing this year, acting “firmly” to curb rising property prices, Xinhua said, citing Mayor Guo Jinlong.

Price Jump

Home prices in Shanghai jumped 26.1 percent in 2010 and those in Chongqing surged 29.4 percent, according to Soufun Holdings Ltd., the country’s biggest real estate website owner.

The property tax for Shanghai this year will have a minimal impact because the levy is expected to be low, said Michael Klibaner, head of China research at Jones Lang LaSalle Inc., the world’s second-biggest publicly traded commercial-property broker. He estimates China’s home prices will rise 5 percent to 7 percent this year.

The Century Weekly magazine reported earlier this month that the tax may be delayed following disputes between government departments.

Chongqing plans to introduce the tax for both new and existing homes, Mayor Huang Qifan said in an interview with state television CCTV aired on Jan. 12, without providing further details.

Shanghai’s property tax plan is “different” from that in Chongqing, the China Business News reported today, citing Liu Haisheng, director of Shanghai’s Housing Guarantee and Administration Bureau. The city has submitted the draft for property tax to the relevant government department, the report cited Liu as saying.

–Stephanie Wong and Bonnie Cao, with assistance from Tian Ying in Beijing. Editors: Neil Western, Paul Tighe.

To contact Bloomberg News staff for this story: Bloomberg News at swong139@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net