Beijing to cut taxes, ease home sale rules

Source : Business Times - 18 Dec 2008

The moves aim to contain the decline in the nation’s property market

China yesterday announced fresh measures to support the ailing property market, including cuts in business and transaction taxes for real estate sales and policies to make it easier for developers to obtain credit.

The State Council, or Cabinet, also said that it would shorten to two years from five the lock-up period during which home owners are subject to a business tax if they resell their homes and that the tax would be levied on their capital gains, not the overall value of the sold property.

‘We need to further encourage and support housing purchases, maintaining reasonable expansion in the property sector,’ the State Council said in a statement on the central government’s website.

The move by the Cabinet consolidates a series of steps that Beijing has taken in the past months to prop up the sector, including pledging to build more low-cost housing and an earlier cut in taxes on home purchases that focused on people buying their first home.

Economists said that reviving the property sector is vital to Beijing’s efforts to counter the current downturn, which has worsened in the past month, with factory output falling to the slowest pace on record.

The floor area of residential properties sold in the first 11 months of the year fell 18.8 per cent from a year earlier, while real estate investment growth slowed to 22.7 per cent in January to November, down from 24.6 per cent in the first 10 months.

‘These moves are much more significant than those announced in the past few months, and combined with our expectation of further significant reductions in interest rates by the central bank in the next few months, they are likely to help stabilise the property market,’ said Peng Wensheng with Barclays Capital.

The State Council also said that it will allow people to buy second homes on the same preferential terms normally reserved for those buying their first homes, such as lower downpayment requirements, as long as the floor space per person is lower than the average for the city in which the homeowner is living.

The Cabinet said that it would also scrap the urban property tax levied on foreign firms and individuals, which was levied at a rate of 1.2 per cent a year on the original value of the property.

The State Council encouraged financial firms to provide services and funds to help developers undergo mergers and acquisitions.

It said that it would support developers’ other ‘reasonable’ financing needs, and would increase credit help for construction especially of low-priced and small units, vowing to provide housing for 9.9 million low-income families in the next three years.

The People’s Bank of China said later on its website that developers building low-rent housing could enjoy a 10 per cent discount on lending rates, effective from January.

To achieve the end of creating enough housing for poor families, Beijing will allow some local governments, on a trial basis, to use the housing provident fund to build more modest homes, the State Council said.

It also gave local governments the green light to take more steps to stimulate their own markets.

‘Local governments, while implementing the central government’s policies, need to take further steps in line with their local conditions to promote a healthy development of the property market,’ it said.