China's property tax reform: short-term pain for common prosperity

AFTER years of procrastinating, China may extend its trial property tax programme to more cities as early as this year, but any tariff is unlikely to be so hefty that could shock the sector even as Beijing seeks to address an affordability crisis in its "common prosperity" drive.

While the start date as well as the participating regions and cities have not been disclosed, the 5-year pilot tax programme will focus on commercial and residential properties. Chinese brokers expect it to kick off in highly populated tier 1 and 2 cities such as Guangzhou's Shenzhen; Zhejiang's Hangzhou, which is also the base of e-commerce giant Alibaba; and the southern island province of Hainan, where population growth is under pressure.

What the tax rate will be and whether it will be applied to existing properties or new purchases remains unclear. Zoe Yang, assistant professor at the School of Hotel and Tourism Management at Hong Kong-based CUHK Business School said if the tax was imposed on existing properties, that would be a huge burden for residents who would have to deal with both the tax and mortgages. The disposable income of Shanghai residents per capita is around 70,000 yuan (S$14,760). For a 10 million yuan house - a common price tag in an affluent city - even a 0.5 per cent tax rate would cost 50,000 yuan a year, adding pressure to families, Yang said.