Data Shows Taxation Is Cooling China's Property Market

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

15 March 2006

It has been reported that revenues received by the Chinese government from property taxation fell last year, ending several years of substantial growth and suggesting that recently introduced measures to cool the housing market are beginning to bite.

Taxes levied on real estate increased 31.3 percent in 2005, more than 14 percent below the previous year's level, Shanghai Daily reported, citing figures from the State Administration of Taxation.

The tax authority stated that curbs on property development and extra taxation have been largely responsible for the decline in revenues.

"The central government's tax policies aimed at curbing the runaway property market and advancing steady development have borne fruit," the authority said.

Real estate prices have been surging in China, and developers have been keen to cash in on the boom by constructing mainly high-end commercial and residential developments. However, rapid urbanization in recent years has led to an explosion in the urban population and left a severe shortage of housing in many cities for low income workers, leading to government attempts at cooling the construction boom with new taxes and restrictions on development.

Last May, 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. More recently, Construction Minister Wang Guangtao said that new policies would be designed to restrict land available for high-end developments while encouraging medium to low-priced projects.

Nonetheless, property taxes have been a huge earner for the Chinese government in recent years. According to the State Administration of Taxation, taxes collected from real estate grew by 41.4% in the five years to the end of 2005. These taxes accounted for 5.9% of China's total revenue take during the same period.

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