China To Discourage Second Home Ownership With Heavy Taxes

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

18 January 2006

China is mulling a punitive new tax on those purchasing second homes, as the authorities continue in their quest to cool the housing market and increase the supply of adequate housing for low- and middle-income citizens.

According to a report by the Xinhua state news agency, Su Kexing, vice director general of the Land Use Department of the Ministry of Land and Resources, told a recent Beijing seminar that new legislation will ensure residents of basic property will pay no property tax, while owners of second homes, villas and luxury residence will be taxed heavily.

Su also warned that the authorities will crack down on developers and officials who continue to build villas despite their being banned by the State in 2003.

As part of China's ongoing efforts to curb speculation and the construction of luxury apartments, Construction Minister Wang Guangtao announced last month that new policies would be designed to restrict land available for high-end developments while encouraging medium to low-priced projects.

Last year, the government attempted to head off a real estate bubble by raising home-loan interest rates, limiting urban demolition and levying taxes on housing sales. However, Mr Wang said that despite these efforts, the amount of housing available to low and middle-income families was inadequate.

The Construction Ministry says that investment in real estate in 2005 will have increased by 21% year-on-year, down from 28% in 2004. However, according to the Academy of Macroeconomic Research, property sales are set to grow 30% in the first six months of the year, before slowing to 20% in the second half.

The government is concerned that housing prices are steadily moving beyond the reach of ordinary citizens, particularly in growth centres like Shanghai, where prices have jumped nearly 70% in the past two years.

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