To boost property sales, China unveils new tax breaks: Report

China is focused on changing its tax structure on residential property transactions. This they are doing to lower the cost of ownership and to try to extend fresh incentives to a wider pool of buyers. These are some measures taken by the nations government to arrest a four-year slump, according to a detailed report by the South China Morning Post.

Benefits for first time buyers from December 1

First-time buyers will enjoy a 1 per cent deed tax on homes measuring 140 sq m (1,507 sq ft) and below from December 1, the Ministry of Finance said on Wednesday, while a 1.5 per cent rate will be taxed on purchase of units above that size. The existing threshold is 90 sq m, whereas for second home purchases, a 2 per cent deed tax will only hit transactions involving units starting from 140 sq m instead of 90 sq m, it added, the South China Morning Post report explained further.

The new structure will be standardised nationwide, the concerned ministry said, implying the rates in top tier-1 cities like Beijing, Shanghai, Guangzhou and Shenzhen will fall from 3 per cent for transactions involving larger units and second home purchases.

Views of the Vice President of E-House China Real Estate Research Institute

“It’s a pretty sizeable move which will directly boost demand for medium to large-sized homes, specifically those above 90 sq m, by reducing transaction costs,” said Yan Yuejin, vice-president of the Shanghai-based E-House China Real Estate Research Institute. Rates will be more aligned nationwide, further supporting the market recovery, he added, as explained in the South China Morning Post report.

The plans to boost housing transactions follow calls from regional authorities in recent months to remove the distinctions between standard and non-standard homes. In mainland China, houses measuring at least 144 sq m are deemed above average and non-standard, the South China Morning Post explained further. 

In the later part of September, the Chinese administration introduced these remedial measures to rescue the nation’s property and stock markets. The overall goal was to revive the economy, after initial hiccups with stopgap measures since the end of the Covid-19 pandemic.

It is also crucial to note that the Chinese economy grew 4.6 per cent in the third quarter, slowing from 4.7 per cent in the preceding three months, below the official 5 per cent annual target, according to official figures.

Possibility of more incentives remain

More incentives are anticipated, according to Jeff Zhang, an equity analyst in Hong Kong at US research firm Morningstar. Home sellers could expect a 5 per cent value-added tax on properties sold within two years to be removed, he said, while a potential reduction in personal income taxes could further boost overall consumption.

In another move to support homebuyers, the government in the southern technological hub of Shenzhen is considering handing out bigger loans to support homebuyers. It’s mulling raising the upper limit of housing provident fund loans for individuals to 600,000 yuan from 500,000 yuan. The limit for households could be raised to 1.1 million yuan from 900,000 yuan.

Therefore, as things evolve, market participants and global investors will carefully follow these developments in China's crisis hit property market. As these developments along with the government support is going to define the trajectory of the Chinese economy.