Liu Huali, whose family owns three apartments in Shanghai, is planning to sell one in case the city decides to raise the tax it imposes on residential properties as part of efforts to cool the market.
Her decision, like that of many besides her, comes as the central government prepares to trial a new property tax in selected regions across the country. The recent announcement of a five-year pilot programme has prompted speculation that the existing levies in Shanghai and Chongqing – the only Chinese cities to impose them until now – may be raised as the government intensifies its campaign to tame runaway house prices.
“It is the right time to cash out now before a higher tax siphons off money from the family’s money box,” said Liu, an associate professor teaching philosophy at a local university.
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“We are already subject to a tariff and obviously we will continue to be the main target of the new mechanism, which will be harsher.”
In Shanghai, residents who own a second home are liable for an annual levy of between 0.4 per cent and 0.6 per cent of the property’s fair value, calculated on the area that exceeds 60 square metres per capita.
Liu paid more than 10,000 yuan (US$1,563) annually for her three homes. They cover a total area of more than 300 square metres, exceeding the 180 square-metre threshold for a family of three. The extra 120 square metres is subject to the property tax.
The local authorities of Shanghai and Chongqing, two of the most populous and wealthiest municipalities in China, were authorised by the central government in 2011 to collect taxes on real estate within their jurisdictions, part of a plan to curb rising prices. But a new government team that took over under Xi Jinping’s presidency a year later deferred the idea of expanding the pilot, according to state media, citing technical difficulties.
Liu is not the only multiple-home owner trying to offload assets to avoid the possibility of higher penalties.
“It looks as if the new tax regime will be harsher now that the central government is determined to curb wild home price rises,” said Cathy Li, who works as a senior official with a state-owned company. “We will have to take the opportunity to cash out. An extra tax bill of tens of thousands of yuan will be too big a financial burden on my family.”
Liu and Li are among the estimated 40 per cent of households in major Chinese cities to own at least two homes. The central government wants to deter multiple-home ownership as part of its decade-long struggle to rein in prices in the 16 trillion yuan real estate market.
The property tax is also part of Chinese President Xi Jinping’s “common prosperity” campaign to redistribute wealth and address widening social inequality.
“There is more and more talk about a potential increase in tax rate in Shanghai. Some of our clients want to sell one or two flats as they are vacant,” said Chen Zhongpeng, an agent at Lianjia in Shanghai.
Chongqing levies a progressive property tax that starts at 0.5 per cent, and goes up to 1.2 per cent. The tariff applies to owners of existing and new villas, as well as new apartments that cost more than double the average price of new homes in the metropolis. Non-residents buying a second home in Chongqing are also subject to a tax.
There is little evidence that the levy has worked, in either city.
The average home price in Shanghai has jumped 155 per cent since 2011 to 54,428 yuan per sq m, according to the E-House China R&D Institute in Shanghai. In Chongqing, average prices had more than doubled since 2011 to 14,501 yuan per sq m as of September.
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