Chinese Land Transfer Revenue Soars

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

19 April 2010

The Chinese Ministry of Finance has published statistics on land transfer payments in 2009 which show that revenues, at RMB1.424 trillion (USD208.5bn), were up 43.2% in the year; this fee income is the mainstay of revenues for local government in China.

Land transfer fees and administrative charges make up almost half the cost of a house, making local government a major beneficiary of China's real estate market boom. About two thirds of the income originated in the booming coastal provinces. Land acquisition and compensation for demolition accounted for 40.4% of the total, while urban construction and land development was 27.1% and 10.7% respectively.

The fees fell by 19.7% in the first half of 2009, the low point of the economic crisis, only to rise by 110.9% in the second half, a sign that fiscal stimulus measures were feeding the property boom. House prices in Beijing almost doubled in 2009.

In response to increasing unrest at the overheating of the property market, a statement was issued after the conclusion of an executive meeting of the State Council chaired by premier Wen Jiabao, in which it was stated that the Chinese government had raised the down payment required from second-home buyers to a minimum 50% of the value, up from 40%. The statement added that first-home buyers' downpayments would have to be at least 30% of the property price if the property is above 90 square meters in size. It also indicated that tax policies would be adjusted to "influence purchases and adjust property investment returns."

Analysts believe that the government's action is a strong signal that the government could levy a property tax in the near future.

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