China's long-mooted - and long-resisted - property tax is set to gain new momentum as President Xi Jinping throws his support behind what would be the most profound policy change in a generation.
The idea of a levy on home owners first surfaced in 2003 but has failed to take off due to concerns that it would damage property demand and tank prices, hurting household wealth and future real estate projects, and triggering a fiscal crisis for local governments addicted to land sales for income.
"The property tax will probably be rolled out in some cities that are not too bad at the moment ," said Betty Wang, senior China economist at ANZ in Hong Kong.A 0.7% rate is plausible, although in practice, China is likely to take a tiered approach with differentiated rates depending on the city, said Julian Evans-Pritchard, senior China economist at Capital Economics.
A property tax will give local authorities a new source of income that they can re-invest in public services and infrastructure investment. As such, developers will face a slowdown in the inventory digestion rate and cash collection, further pressuring their cash-flow and stressing their liquidity, said a mid-size developer based in eastern China.A property tax will boost the cost of holding real estate, triggering asset reallocation towards capital markets, said Sealand's Fan.
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