China Takes Steps To Cool Housing Market With New Business Tax

by Mary Swire, Tax-News.com, Hong Kong

16 May 2005

The Chinese government has decided to act to discourage speculative dealings in the country's real estate market with a range of new measures, including a tax on the full profits of property sales if the owner sells within two years.

The move, which is said to be backed by seven government agencies, is designed to discourage the development of commercial and luxury real estate and ensure that an adequate supply of affordable housing stock remains available for low income workers.

According to state news agency Xinhua, local governments have been ordered to put in place a number of measures to limit developers' ability to make a profit. These include clarifying prices and housing sizes before granting land use rights, limiting credit for property deals and confining real estate developers' profits to a maximum of 3%.

In addition, developers who fail to build within a year after buying land will be penalized, and those that fail to build within two years after buying property would lose their rights to the land.

The central government has also decreed that a business tax will be levied on the profits accrued from sold property which had been held for less than two years, although it failed to specify a rate. This tax is set to come into force in June 2005.

China's average housing prices rose 14.4% last year, despite the government taking a series of macro-control measures, including an interest rate rise, to cool the market.

Average housing prices rose a further 12.5% year-on-year during the first quarter of this year.

Recommended