Chongqing to launch 'high-end' property tax

The property tax will be levied on high-end commercial housing during the 12th Five-Year Plan (2011-2015) as part of the government's effort to adjust the property market by fiscal and taxation means, Chongqing Mayor Huang Qifan said, while making a government work report to the local people's congress and political advisory body on Sunday.

He did not disclose exactly when the property tax will be implemented or how it will be collected.

Xinhua News Agency quoted sources as saying on Sunday that the Ministry of Finance has given the green light for Chongqing to levy the property tax and will allow the municipal government to flesh out the details.

"Chongqing is busy drafting relevant implementation plans and is expected to commence collecting the property tax in the first quarter of the year," the Xinhua report said.

Previous media reports by the Beijing-based China Times said that Chongqing plans to label villas, apartments bigger than 200 square meters and housing with an assessed value three times more than the average housing price in the city as "high-end properties".

The China Times reports also said families that own more than four properties are likely to be required to pay the property tax.

Apart from fiscal and taxation measures, Huang said the city will also increase the supply of land and invest more in government-subsidized housing.

According to the work report from the Chongqing finance bureau to the local people's congress, the city spent 2.93 billion yuan ($442 million) in 2010 in government-subsidized housing, about 21.5 times the investment in 2009.

In 2011, the city plans to start construction on 13.5 million square meters of low-rent apartments to meet the demand of the underprivileged, Huang said.

Property prices in major Chinese cities, such as Beijing, Shanghai and Chongqing, have been continually rising for the past two years, triggering growing public concern.

Many deputies to the Chongqing Municipal People's Congress and members of the local political consultative conference said on Sunday they believe the planned property tax reform can achieve the expected social and economic goals. But some are concerned it may also increase people's financial burden.

"The government should clearly explain what 'high-end' means," Zhang Huayi, a deputy from Chongqing's Fuling district, said. "I think only villas that consume excessive resources should be defined as high-end properties."

"Local governments have profited from selling land and taxing property deals. It doesn't make sense to re-tax residents who already owe large debts to banks," Zhang said.

A property tax may also not be able to bring down house prices as much as people hope, said Wang Qiong, head of research at Savills (Beijing), a UK-based real estate consultancy company.

Wang said based on international practices and experience, a property tax mainly plays the role of adjusting the taxation income between the central and local government.

"Such a tax can help reduce local governments' reliance on selling land, but not necessarily cut house prices," she said.

Qin Xiaomei, chief researcher at the property services group JLL Beijing, said the extent to which a property tax can influence the housing market depends on the tax rate.

She said if the tax rate is mild, which is likely to be the case, as the government won't be willing to see a dramatic rise and fall in house prices, it won't affect the market much, as the arrival of such a property tax has been long expected and the market has absorbed the impact.