Shanghai Introduces New Tax Incentives to Revive the Real Estate Market
Shanghai is rolling out new tax cuts for real estate transactions to boost the city's property market, but experts are divided on their potential impact.
Real EstateShanghaiTax CutsProperty MarketEconomic GrowthReal EstateDec 01, 2024
Last week, indices tracking China's real estate stocks and Hong Kong-listed mainland property developers both showed gains, indicating a positive response to these measures. Shanghai has decided to eliminate the distinction between 'ordinary' and 'non-ordinary' housing for value-added and personal income tax purposes. Previously, 'non-ordinary' housing, defined as properties larger than 144 square meters (1,550 square feet), faced higher taxes.
Under the new rules, residents will be exempt from value-added tax (VAT) if they purchase a property and hold it for at least two years before selling. Additionally, the threshold for deed tax eligibility has been raised to properties larger than 140 square meters, from the previous 90 square meters. According to Yan Yuejin, an analyst at the E-House China Development Institution, purchasing a 10 million yuan ($1.38 million) apartment will now result in a minimum deed tax payment of 100,000 yuan, down from the previous maximum of 300,000 yuan.
Shanghai authorities have been intensifying efforts to support the real estate market throughout the year, following the central government's initiatives such as interest rate cuts and reduced down-payment requirements. Despite these measures, demand has remained weak. In October, resale home prices in Shanghai declined for the 16th consecutive month, falling 6.7% year-on-year. However, official data released on Friday showed a slight month-on-month increase in new home prices.
Shanghai's latest measures align with national policies aimed at restoring confidence and reviving sentiment in the housing market. Bruce Pang, chief economist at JLL, commented, 'We expect more cities to introduce similar incentives in the coming weeks.' The relaxed tax policies have garnered significant attention on Chinese social media platform Weibo, with over 800,000 views. However, many Weibo users expressed disappointment, with one commenter stating that property prices are still unaffordable for average workers, while another noted that the market may not recover in the short term despite the stimulus.
According to Bruce Pang, reducing transaction costs alone is unlikely to provide a lasting boost to the housing market. To truly revitalize the property sector, policymakers need to focus on enhancing residents' confidence in economic and income growth, while providing a more stable outlook for housing prices.
Frequently Asked Questions
What are the new tax cuts introduced in Shanghai for real estate transactions?
Shanghai has introduced tax cuts that eliminate the distinction between 'ordinary' and 'non-ordinary' housing for value-added and personal income tax purposes. Residents will be exempt from value-added tax (VAT) if they purchase a property and hold it for at least two years before selling. The threshold for deed tax eligibility has also been raised to properties larger than 140 square meters.
How have these tax cuts been received by the market?
The introduction of these tax cuts has led to gains in indices tracking China's real estate stocks and Hong Kong-listed mainland property developers. However, many Weibo users have expressed disappointment, citing that property prices remain unaffordable for average workers.
What other measures have been taken by the Shanghai authorities to support the real estate market?
Shanghai authorities have intensified efforts to support the real estate market, including following the central government's initiatives such as interest rate cuts and reduced down-payment requirements. These measures aim to stimulate demand and alleviate financial pressures on developers.
What has been the trend in resale home prices in Shanghai?
Resale home prices in Shanghai have been declining for the 16th consecutive month, falling 6.7% year-on-year in October. However, official data showed a slight month-on-month increase in new home prices.
What are the experts' opinions on the effectiveness of these new tax cuts?
Experts like Bruce Pang from JLL believe that reducing transaction costs alone is unlikely to provide a lasting boost to the housing market. To truly revitalize the property sector, policymakers need to focus on improving residents' confidence in economic and income growth, while providing a more stable outlook for housing prices.
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