China’s Finance Minister Talks Property Tax Levy

In the recently released volume on understanding the Chinese Communist Party’s 19th Party Congress report, Finance Minister Xiao Jie explained how China’s real estate tax would be levied in the future.

Why it matters: The issue of real estate tax has been a hot topic for several years, and there are differing opinions about whether or not the Chinese authorities should levy a tax. 

Some economists believe that a real estate tax will suppress the rising cost of housing in China. Other economists and most Chinese citizens are of the view that the authorities are being unfair to property buyers because land leases in China are valid only for 70 years, and property prices are very high already because developers transfer land costs to the consumers. The local authorities in Shanghai and Chongqing had levied a real estate tax in 2014, but the results were inconclusive given the low tax rate.

Our take:

  1. During the 19th Congress, Xi Jinping stated that houses are supposed to be for residential use and not speculation. Xi’s remark reflects the Chinese authorities’ concerns about China’s property bubble.
  2. The various local administrations have long relied on selling land leases to supplement their income. This practice has driven up land and property prices, and increasingly worsening China’s economic bubble. So to maintain the revenue of local governments, the Chinese Communist Party is pursuing the idea of implementing a real estate tax.
  3. If market pricing determines the valuation of the real estate tax, then real estate speculators and the Chinese middle class will find the tax a heavy burden to bear. Local governments, however, will still find ways to keep housing prices high.