The announcement, in Beijing, of a homeowner’s tax has aroused a storm of discussion on Chinese Internet forums. While officials have stated that the tax intends to bring down home prices and discourage real estate speculators, average home buyers say the tax is unfair and a huge burden to them. Meanwhile, state entities keep feeding the housing market bubble.
The new tax announcement came after recent failed measures by the regime to cool the country’s overheated real estate market; one measure being the attempt to curb speculative purchases.
Statements by experts in support of the tax have blamed speculation investments by China’s affluent as being the main cause of soaring home prices. They argued that the tax will stop speculative property purchasing since the cost of home ownership will go up.
This argument has convinced quite many people into believing that the new homeowner property tax will eventually lead to lower home prices.
The Housing Bubble
Economist and housing market expert Dr. Liu Zhengshan told Voice of America earlier last month that China’s housing bubble had reached a critical point by all standards of measurement. “In cities like Beijing and Shanghai, the housing price is over 20 times higher than average annual household income,” he said.
In March, housing prices in China’s 70 major cities increased 11.7 percent over the same period last year. In Shenzhen the price increase reached 95 percent, while in Beijing it was 88 percent.
In a statement posted on the Ministry of Finance’s website on Sept. 30, Beijing revealed its decision to implement pilot programs of a homeowner’s property tax in certain cities, saying it was, “necessary to ensure a healthy property market.” And that the tax would further, “boost income distribution adjustment and economic restructuring.” The statement did not specify when and where the pilot programs would be implemented.
The vague wording of the Ministry’s statement was likely intended to make the public believe that the tax would benefit the people. However it is likely that the majority of Chinese received the news with distrust, apprehension, and outright sharp disapproval.
A poll on China’s popular website sina.com shows that 62 percent of 4,905 respondents don’t believe the residential property tax will be effective in lowering home prices.
Another poll on ifeng.com with close to 150 million respondents shows 54.3 percent saying the new tax will just be a burden for ordinary people.
However, the actual disapproval rate may actually be higher as the regime is known for hiring people to manipulate online opinions.
A comment on ifeng.com by a blogger named Shen Chun is representative of the tax supporters’ opinions. “The root cause [of high home prices] is that there are too many rich people. They have grabbed too many houses. A reasonable taxation system must be established,” Shen said.
Tax Unfair to ‘Real’ Home Buyers
But most people don’t agree. On popular websites sina.com, people.com.cn, and ifeng.com, comments about the proposed tax are overwhelmingly negative. Many people don’t believe that speculators will stop buying up real estate because of the property tax.
A sina.com blogger nicknamed “Real Estate Elite” said, “The property tax does not change the fact that real estate investors can make a profit. It doesn’t matter how much I make, the point is that I’m making a profit. From an investor’s perspective, I don’t believe the tax will stop investors from purchasing.”
Many others say they believe it is ordinary homebuyers who will feel a much deeper cut than investors.
Blogger App230 said in an ifeng.com post that an investor would not need to pay too much tax as they usually own a property for only two or three years. “For real homebuyers, the tax is a long-term burden. Assuming a 1 percent for a 1 million yuan (approx. US$150,000) home, a real homeowner will have to pay an extra 800 yuan (US$120) every month.”
Most Chinese Don’t Own Their Homes
Some bloggers altogether question the legitimacy of the property tax, as Chinese homebuyers don’t own the property; they are only given 70-year leases. The land and all improvements (buildings) belong to the government.
“Buying a house in China actually means renting it at a very high price,” one blogger said. “If we’re just renting, why should we pay [property] taxes?”
Peking University economist Professor Xia Yeliang concurs. He told Radio Free Asia the regime shouldn’t blindly copy the taxation system of Western countries. “Residential real estate taxes should not be applied in China, because Chinese people cannot buy ownership of the land, while in the Western countries people own the land their houses are built on.”
Xia also said it was stupid to levy a tax just to lower housing prices.
“Lowering home prices is a short-term goal, while taxation is a long-term policy,” Xia said. “If one day home prices fall below the government’s bottom line, would they just abolish the property tax? Taxation is a serious matter, and the government should not instate new taxes to fix short-term goals.”
Mistrust of the Regime
General distrust in the regime cause many Chinese to outright oppose the tax.
Blogger Liu Gen said on sina.com, “[Certain] people can always find loopholes in policies. At the end of the day it is always us, the ordinary people with little money, who suffer the most.
“The government has been talking about controlling home prices, but the prices just keep rising. Real estate is the largest source of revenue for local governments. I doubt that local governments will actually implement such policies,” Liu said.
Others expressed doubt that the tax money would be used to benefit the common people. They believe corrupt government officials will just use the money to support their luxurious lifestyles and their mistresses. And many have commented that property taxes should start with officials.
“We have been the slaves of our house, car, medication and cost of raising children. Now we are also slaves of taxes. How will our lives ever get better?” a blogger on people.com.cn lamented.
Housing Bubble Created by the State
Many economists have said that the housing bubble appears to have been created primarily by local governments, state-owned enterprises (SOEs), and banks.
Dr. Liu, a research fellow at Peking University, believes that the speculative land purchase binge that peaked in 2009 was a result of the $600 billion stimulus money the central government pumped into the market at the end of 2008. The majority of the amount, experts say, has been invested in the real estate market by SOEs.
The SOEs comprise the majority of the “land kings,” said a Guangzhou Daily report. Their spending has played an important part in driving up land and housing prices.
Local governments are also very eager to sell more land in order to meet the 8 percent GDP increase target set by the central government. Lands for sale used to fill that quota are mostly expropriated from local residents, especially farmers, forced demolitions, and violent evictions.
Banks are another one of the stakeholders who do not wish to see declining housing prices. Economist Cao An has said that a plunging housing price would be the worst nightmare for China’s financial system.
According to the IMF’s 2009 report, the Forbes Tax Misery Index indicates that China has the world’s second highest levels of taxes, while its per capita GDP at purchasing power parity ranks only 99th.
