[Correspondent Diary] Will China Catch the National Ruin Disease of Real Estate Speculation?

Shanghai, Chongqing, Shenzhen, Hangzhou, Suzhou, Hainan, Zhejiang Province Emerging as Pilot Areas for Property Tax
Expectations for Stable Home Price Decline... Concerns Over Side Effects Like Rent Increase

[Asia Economy Beijing=Special Correspondent Jo Young-shin] The biggest concern for China, a socialist country, is ironically the wealth gap. This issue arose as a result of rapid industrialization and economic growth unlike anywhere else in the world.

The polarization in China is so severe that it could shake the socialist system. According to the 2019 data on household assets and debts of urban residents in China, the top 20% hold 63% of real estate assets. The top 10% account for 47.5%, while the bottom 20% hold only 2.6%. From the perspective of the Chinese leadership, which advocates for "common prosperity (everyone eating and living well together)," the real estate issue is a challenge that must be resolved.

Photo by Bonghwa Mang Capture

The Chinese leadership has focused on real estate. They view real estate as a source of unearned income and the main culprit exacerbating the wealth gap.

Ultimately, the Chinese leadership decided to impose taxes on real estate. Despite side effects such as the liquidity crisis of Evergrande Group and the sharp downturn in the real estate market, they are determined to control real estate.

The Standing Committee of the National People's Congress (NPC) held a meeting on the 24th and passed the "Decision on the Reform of Real Estate Tax in Some Regions." The NPC delegated the authority to formulate detailed regulations and implement them to the State Council, requiring the State Council to select pilot regions considering the real estate market situation.

Shanghai and Chongqing are likely candidates for the pilot regions. In 2011, Shanghai and Chongqing imposed a real estate tax called Fangchanshui targeting high-priced homes and multiple homeowners, but it failed.

Chinese media, upon hearing the NPC's decision, are predicting the introduction of a holding tax. They pointed out that the failure of the real estate tax introduction in Shanghai and Chongqing was due to low tax rates, applying taxes only to newly purchased homes excluding existing ones, and taxing only luxury homes such as villas. The tax policy was criticized for being far from stabilizing real estate prices.

The overall tone of Chinese media supports the introduction of the real estate tax. There is an expectation that imposing the real estate tax will stabilize housing prices and somewhat alleviate the wealth gap.

Chinese media analyze that the tax burden on multiple homeowners is likely to lead to downward adjustments in housing prices. Fenghuawang warned that since stabilizing housing prices is the basic purpose of imposing the real estate tax, multiple homeowners in the pilot regions should prepare in advance.

Besides Shanghai and Chongqing, Shenzhen, Hangzhou, Suzhou, Hainan, and Zhejiang Province are also reported to have a high possibility of being included as pilot regions.

However, concerns about side effects are also emerging. A representative example is the rise in monthly rent. Multiple homeowners are likely to pass the tax burden onto tenants.

The real estate tax enforcement method (regulations) will be valid for five years from the date of promulgation by the State Council, and any adjustments to the application period or cities for the real estate tax require approval from the NPC.

This content was produced with the assistance of AI translation services.