China Doesn’t Have Property Taxes, But Soon It Will

By Jonathan Walker | October 28, 2021
Jonathan loves talking politics, economics and philosophy. He carries unique perspectives on everything making him a rather odd mix of liberal-conservative with a streak of independent Austrian thought.
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China is planning to introduce taxes on properties.
China is planning to introduce taxes on properties. (Image: Atlantios via Pixabay)

Almost two decades ago, Chinese authorities began floating the idea of taxing property owners. And now, the government has begun moving in this direction. On Oct. 23, the country’s top legislature, the National People’s Congress (NPC), adopted a decision to authorize the State Council to carry out a pilot test of the new tax policy in certain regions.

Unlike the United States and other countries, China does not have a blanket tax on property. Talk of a potential tax began in 2003. In 2011, local administrations of two of the wealthiest municipalities in the country, Chongqing and Shanghai, were allowed to collect taxes. Almost a decade later, the tax plan is now being emphatically pushed forward.

According to state-backed media outlet Xinhua, the property tax legislation will ensure “rational housing consumption” as well as the most “economical and intensive use” of land resources. It will also promote a “steady and sound development” of China’s property market. 

The taxation policy comes amidst the property sector facing an intense crisis due to massive debt holdings among developers. One of the biggest real estate companies, Evergrande, has over $300 billion in debt and is struggling to honor its payments. Many other developers are also in a similar situation, thus posing a serious risk to the property market and the wider economy.

“The current practice in housing and land use will be strictly controlled and guided, especially such behavior as real estate speculation… Taking into account the cities which had been discussed the most recently in the market, Zhejiang province is likely to be included in the tax reforms, especially Hangzhou,” Yan Yuejin, director at Shanghai-based E-house China R&D Institute, said to SCMP.

Hangzhou is the eighth largest city in China. Last year, Hangzhou’s economic output reached around 70 percent of Hong Kong’s GDP. As of now, no date has been fixed for the pilot tax program. The taxation policy will not be applicable to rural homes. The State Council will decide which areas to bring under the pilot program.

Ever since Beijing allowed private homeownership back in 1998, property prices have jumped almost 20 fold. In 2019, around $1.7 trillion worth of new homes were sold in China, which was seven times the U.S. number. 

Roughly 70 to 80 percent of household wealth in the country is accounted for by property. Moreover, properties also contribute to 10 percent of China’s household income. As such, some experts see a strong resistance against the property tax proposal.

Ting Lu, the chief China economist at Nomura, stated in a recent research note that Beijing is likely to move cautiously with regard to the taxation policy, phasing in the taxes gradually over time. Even then, Lu believes new home sales might suffer.

Restricting the housing market is also something Chinese President Xi Jinping has been stressing of late. In an article written at Quishi, the official theoretical journal of the CCP, Xi called on officials to steadily move forward with property tax legislation. Houses “are for living, not for speculation,” the Chinese president said.

In an interview with CNBC, Yue Su, principal economist at The Economist Intelligence Unit, stated that the property tax legislation comes at an appropriate time for Beijing.

“I think the central government has chosen [the] right time because of the political reshuffling happening before and after the 20th party congress next year, so to really resist a central government policy will be [a risk] to local government officials’ own career.”