New property tax has little effect
Updated: 2007-07-17 06:50
 Pre-owned housing information on display at a Shanghai exhibition. Jing Wei |
According to the announcement from Shanghai tax bureau, sellers are required to pay a 0.5 percent tax on the transaction amount if they have retained non-regular residential properties for less than three years, and 0.25 percent on properties retained for more than three years but less than five years. Sale of properties retained for more than five years is not subject to this tax.
Analysts said LAT does not seem to have achieved its designed objective of discouraging excessive speculation because the burden of the tax has largely been passed onto the buyers.
Because of the strong demand for luxury properties, the impact of LAT on the property market is seen by property agents and analysts to be limited.
"Many sellers don't mind the tax because they have already raised house prices," said a salesman surnamed Zhou at Shanghai Centaline Property Agency Co Ltd.
"It's a sellers' market, the demand is huge. Some second-hand house owners are even holding the houses and waiting for the prices to go further up," said Mao Zhi, a professor at China Real Estate Index Research Academy.
"Most buyers have no problems with the added tax. The LAT for a 2 million yuan property amounts to only 10,000 yuan, not a large amount compared with the total transaction value," said a salesman at Shanghai Jiuyu Property Agency Co Ltd.
"The maximum LAT in Shanghai, at 0.5 percent, is lower than the 1 percent tax in Beijing. Thus, the impact is comparably modest," said a recent report from Colliers, a leading international real estate service provider.
There is no LAT in other Asian cities such as Hong Kong and Singapore. Sellers in Hong Kong do not have to pay capital gains tax while only non-resident sellers in Singapore need to pay a withholding capital gains tax ranging from 5 to 15 percent from sales of property retained for less than three years.
Statistics from Shanghai Existing Property Index Office show prices of pre-owned houses covering over 70 percent districts in Shanghai rose 3 percent in June from May.
"The sales transaction volumes of Shanghai residential properties have been relatively steady since last year, and we have seen a high level of end-user demand in the market," said the Colliers report.
(China Daily 07/17/2007 page13)