February 1, 2013 / 1:46 AM / in 5 years

China to postpone widening of property tax pilot programme - report

SHANGHAI, Feb 1 (Reuters) - China will postpone the expansion of a pilot programme to implement a property tax, the official China Securities Journal reported, citing anonymous official sources, who added that Beijing intends to keep a tight lid on the property market through other means.

The officials were quoted as saying the market was not yet mature enough for wider implementation of the tax, citing the general complexity of the residential housing market, the lack of clarity regarding property rights and technical issues as reasons for the delay.

The report marks a step away from a statement by an official from the State Administration of Taxation last September that suggested the programme was about to be expanded beyond its original sites of Shanghai and Chongqing in order to cool rising property prices.

The Chinese property share index showed little immediate reaction to the news, opening up 0.4 percent then declining along with the wider market after official data showed China’s manufacturing activity moderated in January.

China’s plan for a nationwide property tax is designed to unify its present array of property-related taxes and replace a slew of restrictions on multiple and speculative home purchases, in response to a 10-fold surge in property prices over the past decade.

Administrative measures restricting mortgages and otherwise targeting speculative behaviour caused housing prices to decline for part of 2012, as Beijing attempted to rein in destabilising consumer price inflation, but the property market has shown signs of reheating in recent months.

The risk that inflationary pressure might increase in 2013 has caused some economists to predict that Beijing will need to tighten monetary policy later in the year, after loosening it in 2012.

The decision to hold off on expanding the pilot would mark a setback in efforts to wean local governments from what many economists see as an unsustainable dependence on land sales for revenues.

Because property is not directly taxed after sale, experts say local governments continuously seek to sell new property to meet budgetary commitments and to invest in infrastructure projects that generate positive GDP figures, which are considered key to secure promotions.

This has led to a widespread and unpopular practice of forcing residents to relocate from existing developments so the property can be resold to property developers.

At the same time, the low cost of buying and holding property makes it easier for developers to hold that property off the market in hope of further appreciation, and also means there is less economic incentive to rent out empty units.

The result has been an explosion in rents that has cut into the incomes of lower- and middle-class Chinese citizens unable to afford to buy a home.

The government should continue to explore other tools, including other forms of taxation, to regulate the market, Friday’s report said. (Reporting by Pete Sweeney; Editing by Edmund Klamann)

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