Shanghai would be the first major city in China to implement tax incentives to boost the country’s struggling property sector, state news agency Xinhua reported Monday.
Tax incentives
The Shanghai Housing and Urban-Rural Development Commission, Housing Administration Bureau, Finance Bureau, and Tax Bureau jointly announced the new rules, which are set to take effect on December 1.
Under the new rules, Shanghai residents who want to sell their existing properties will be exempt from paying VAT. The financial capital also raised the standard for levying deed tax to properties larger than 140 square meters from 90 square meters.
The city will also eliminate the division between ordinary and non-ordinary housing when it levies value-added taxes and personal income taxes on sales, becoming the first “tier one” city to do so.
“The tax savings of tens of thousands of yuan for sellers, coupled with reductions in deed tax for buyers, provide both parties with more room for negotiation. This creates a favorable environment for transactions, making it easier to close deals and help maintain a relatively high level of market activity,” Xinhua quoted Lu Wenxi, market analyst at the real estate agency Centaline Property as saying.
Other major cities are expected to implement similar moves to stem the slump in property markets.
“Shanghai’s recent move is a continuation of these nationwide policies, all designed to restore confidence and rejuvenate sentiment in the housing sector. We anticipate that more cities will unveil similar incentives in the coming weeks,” Reuters quoted Bruce Pang, chief economist at JLL, as saying.
Analysts generally agreed that this is not a long-term fix and that authorities will need to introduce additional policy measures to address the broader issues undermining consumer confidence.
Resale home prices in Shanghai fell for the 16th consecutive month in October, down 6.7% from a year earlier, according to official data.
Similar moves
The world’s second-biggest economy has been facing an unprecedented crisis in real estate sector, a key engine of growth.
Last week, the Chinese Ministry of Finance said the country will increase deed tax incentives to actively support people’s essential housing needs and improve their housing conditions, according to Xinhua.
The new policies, which will take effect in December, were jointly introduced by the Ministry of Finance, the State Tax Administration, and the Ministry of Housing and Urban-Rural Development.
Under the new policies, individuals purchasing their only residential property or a second home, as long as the area does not exceed 140 square meters, will pay deed tax at a rate of 1% anywhere in the country. For properties with an area exceeding 140 square meters, the deed tax will be levied at a rate of 1.5%.
Zhang Dawei, chief analyst with real estate agency Centaline Property, said that the regulations will mainly benefit those who plan to purchase bigger homes, reported Xinhua. He added that revised tax standards are expected to encourage purchase demand for both improved housing and second homes.
The transaction volume of new homes surged by 0.9% in China in October, reversing a decline that started in June last year. Second-hand home transactions also rose for the seventh consecutive month and by 8.9%.
In May, China announced numerous measures to stabilize its property sector, including the central bank facilitating $138 billion (RMB 1 trillion) in extra funding and easing mortgage rules.
