As China’s restrictions on residential property sales have cooled down developer demand for new land, local governments find themselves in need of some new revenue streams to fuel their infrastructure projects and maintain public services. In the case of two more major cities, the source of new income could be property taxes.
According to a recent report in Reuters, a government official refused to deny that real estate holding taxes are planned for the cities of Guangzhou and Nanjing. From the story:
China may look to roll out its property tax scheme to the cities of Guangzhou, Nanjing, and some second and third tier cities in the country’s midwest, the Shanghai Securities News reported on Friday quoting a government researcher.The government “won’t rule out the possibility of implementing the tax” in Guangzhou, Nanjing, and second and third tier cities in the midwest region, said Jia Kang, head of the Research Institute for Fiscal Science at the Ministry of Finance.
During 2011 the government introduced property taxes on an experimental basis in Shanghai and Chongqing, and many observers expect these measures to gradually spread to most major markets over the next few years. Their introduction into Guangzhou and Nanjing could be the next step in this process.
Beijing has already declared that it will not impose property taxes, which could very well be of case of while, the government thinks that having property holders pay taxes on property is a good idea, they mostly think this is a good idea for property holders who are themselves.
In addition to providing a substitute source of revenue for local governments who are seeing land sale income dwindle, property taxes also may help to dampen investor demand for new real estate as the tax would increase the carrying cost of such investments.