By Bloomberg reporter and anchor Sofia Horta e Costa
Chinese authorities are in no rush to impose a nationwide property tax, showing the challenges officials face in trying to apply a broad blanket policy to such a huge market. The State Council will widen property-tax trials to more areas and start taxing residential property owners, a plan that will last for five years, news agency Xinhua reported late Friday.
“The fact that a nationwide property tax will have to wait for another five years suggests that the authorities have shown little determination to wean the Chinese economy off its dependence on real estate investment and the property market anytime soon,” Citigroup analysts led by Li-Gang Liu wrote in a note.
The possibility of a broad levy has been in focus since high-level policy makers discussed the idea in May. A Communist Party journal recently published a speech by Xi Jinping that included advancing legislation on property taxes, a subject reiterated days later by a former state researcher. But the Wall Street Journal reported last week that a plan to roll out a property tax more widely has faced strong pushback from some officials in Beijing.
Macquarie said it could take a “long time” for a property tax to be implemented nationwide, citing challenges ranging from technical issues to widespread resistance to such a levy. While the government may roll out pilot programs in more cities, especially those with fast rising prices, the impact on the property market and the overall economy should be limited, Macquarie economists led by Larry Hu wrote in a note.
Slowing China’s housing market is one of the many campaigns being waged by Xi as he seeks to reduce the cost of raising a family and cut leverage in the financial system. Yet it’s also one of the toughest goals to achieve given the vital importance of the sector to the economy -- the industry accounts for about a third of gross domestic output and 40% of household assets.
Guo Shuqing, the chief banking regulator, last year identified banks’ excessive exposure to the property market as the biggest risk facing the financial system. Measures including restricting financing to developers are already having an impact on the economy, with data last week showing a sharp slowdown in growth to 4.9% in the third quarter from 7.9% in the previous period. Chinese home sales by value tumbled about 17% in September from a year earlier.
Jefferies said it was neutral on news. While the timeline is longer than the brokerage’s 2-3 year expectation, investors may turn more cautious in the short term while they wait for more details about the trial scheme, Jefferies analysts led by Stephen Cheung wrote in a note.
Sentiment in Chinese markets recovered last week as officials played down the risk that an Evergrande collapse would destabilize the financial system. But the country’s home prices are at risk of “meaningful downside” regardless of what happens to Evergrande, Citigroup analysts wrote last month.