OFFPLAN NEWS

(06.07.2007 )
Cheap property China China property tax not practical at this time

AFTER issuing in vain a series of policies to slow the increasing rate of housing prices in some cities, the central government is thinking of introducing a property tax to control the China real estate industry.

However, in view of China's land policy and the characteristics of the real estate market, the effectiveness of such a measure is questionable.

Property tax in the United States and Europe is the taxation of immovable property, mainly land and buildings, that an organization or an individual owns.

The tax is based on the value of the property and is collected annually. When the value of the property changes, so does the assessed or appraised value.

It is acknowledged as an effective means of promoting the redistribution of social wealth and thus helpful to address imbalanced income distribution.

"The premise for the collection of property tax is that the property belongs to an individual," says Hu Yijian, professor of finance of the Shanghai University of Finance and Economics.

In China, land ownership belongs to the country rather than individuals. Individuals may buy the land use right for a certain number of years and the ownership of a building, but not the land ownership.

Therefore, "it is not fair to tax both land and buildings now that the land ownership does not belong to the individuals," stresses Hu.

The value of the property represents the value of both land and buildings. Given the scarcity of land, the value of property is mostly decided by the value of land. And the difference in value between different properties is also decided by the difference in land value.

Therefore, it makes more sense to tax the land but not the buildings. Following such logic, "the payer of property tax in China should be the land owner, not the individual land users," says Hu.

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