China can manage financial risks if property tax introduced: state media

BEIJING (Reuters) - China could manage the resulting financial risks if a property tax is introduced and causes the housing market to correct, a state newspaper said on Monday in a front-page commentary that sought to dispel fears that such a tax would burst a price bubble and spark a calamitous rise in bad loans for banks.

“The risks are overall manageable, despite the possibility of bringing short-term shocks to the market,” the Economic Information Daily said, estimating China would be able to weather a 20 percent decline in house prices.

China has for years mulled an annual property tax, which could deter speculation in real estate, though little progress has been made due to resistance from stakeholders, such as local governments who heavily rely on land sales for revenue.

Only Shanghai and Chongqing have implemented a limited property tax as a pilot program since 2011.

Prices of new homes in China surged 12.4 percent last year, the fastest rate since 2011, leading more than 20 cities to introduce property curbs to cool the market since October.

Concerned by the stubbornly strong market, China’s leaders have called a “long-term mechanism” to be established quickly to restrain property bubbles and prevent price volatility. President Xi Jinping said at the end of last year that authorities would use financial, fiscal, tax, land, and regulatory measures to keep a rein on the property market in 2017.

“China issued 4.96 trillion yuan ($721.54 billion) of new mortgages to individuals in 2016, while outstanding mortgages held by individuals rose 35 percent to 19.14 trillion yuan.” Fitch Ratings said in a recent report.

“We still believe growth in mortgage lending could continue to add to risks in the banking sector - with fast-growing, mid-tier banks the most vulnerable,” the credit ratings agency said.

Reporting by Yawen Chen and Ryan Woo; Editing by Simon Cameron-Moore