CASS Says China’s Real Estate Tax Should not Apply to Untransacted Homes

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Researchers from  the Chinese Academy of Social Sciences (CASS) have called for regulators to refrain from applying a real estate tax to residential property which isn’t traded.

On 11 December CASS released the “China Residential Property Growth Report (2018 – 2019)” (中国住房发展报告(2018-2019)) in Beijing, which outlined recommendations for the implementation of a real estate tax in China.

The report calls for “only launching levy plans on newly traded residential property, which means calculating the entire floorspace of residential homes once they are traded, and applying a levy in accordance with the levy threshold.”

The report also calls for a temporary stay on levying taxes on residential property which isn’t traded.

According to the report China’s property market currently faces three main risks:

i ) The two-way risk of a structured bubble on the real estate market either bursting or continuing to expand;

ii) Risk in relation to real estate financing, including a rapid rise in leverage ratios as well as leverage in breach of regulations;

iii) Risk of excessive dependence of China’s macro-economy upon real estate.

In order to deal with these issues CASS calls for the government to effectively manage expectations, with recommended measures including:

i) Stabilising real estate market expectations while removing an “expectations bubble;”

ii) Improving real estate market control policies, and preventing strong volatility on the property market in either direction;

iii) Firmly reforming the foundational system and accelerating the establishment of long-term effective policy measures.

In addition to a real estate tax, other long-term policy measures could include the use of future returns on real estate taxes and infrastructure as a flow of funds for the future repayment of debt and the issuance of municipal bonds; adjustments to the fiscal relationship between central and local government and reform of the system for divvying up land transfer revenues, and accelerating improvements to a system which places equal emphasis upon the leasing and purchase of homes.

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