Shanghai To Levy Property Speculation Tax

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

09 March 2005

The tax authorities in Shanghai have placed a 5.5% tax on the profits from certain property sales in the city, in an attempt to curb speculation in the real estate market and cool soaring house prices.

According to reports, the tax will apply on properties that are sold within twelve months of purchase, and will form part of a series of measures designed to increase the stock of affordable housing for the city’s low income workers.

The government of Shanghai is reportedly endeavouring to increase the proportion of low and mid-priced apartments to 65% of the city’s housing supply.

JP Morgan economist Frank Gong noted in a report by the Chinese Xinhua state news service that that the move is an indication that “the Shanghai Municipal Government has been facing huge pressure from the Central Government to cool off its property market".

It is said that average house price in Shanghai has reached 5,118 yuan (US$618) per square metre, making the city the second most expensive in terms of real estate prices in the mainland.

However, some developers have forecast that prices could soon reach US$5,500 per square metre at the luxury end of the market.

Andy Xie, an economist at Morgan Stanley, has warned the city’s authorities that more may have to be done to slow down the market and prevent a real estate bubble.

"Speculative hoarding is now a major force in pumping up property prices. When the property bubble bursts, the banking system could suffer enormously," Xie stated, according to Xinhua.

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