Real estate tax expert Shi Zhengwen disclosed in an interview with News Weekly that "real estate tax" may be piloted before the end of the year:
Recently, an interview with the official media China News Weekly on "Real Estate Tax Expert - Shi Zhengwen" made headlines in various media reports, the most citing One of the information people are concerned about is: "Real estate tax may be piloted before the end of the year, with the tax rate not exceeding 1%" . In addition, four important points were revealed in this interview: First, real estate tax has been put on the agenda, and first-tier and small number of second- and third-tier cities will be piloted first; second, real estate tax is to squeeze the bubble of high housing prices and reduce the price of commercial housing; third, implement the principle of high-end light taxes; fourth, under the background of common prosperity, the secondary distribution of wealth can be adjusted.
Source: Sina Finance
Our role and significance of the real estate tax expressed in this article are basically the same as Professor Shi. The only questioning is the time point of launch: before the end of this year. Judging from the development trend of the real estate market, we have missed the two best time points for real estate tax . The first time was in 2017-2018, when housing prices in core first- and second-tier cities rose rapidly, and the upward trend spread to third- and fourth-tier cities; the second time point was in the first half of this year, housing prices and land prices in core cities and some third- and fourth-tier cities were generally overheated. The situation of the entire real estate market has changed since the second half of the year. In addition to the comprehensive decline in sales, investment and other data released by the Bureau of Statistics, the "five continuous declines in real estate financing" given by the China Banking and Insurance Regulatory Commission on September 7 once again confirmed the market turn. The five declines in real estate financing are (as of the end of July):
· Real estate loan growth rate hit an eight-year low, and real estate loans in the banking industry increased by 8.7% year-on-year, 3 percentage points lower than the growth rate of various loans.
· Real estate loan concentration has declined for 10 consecutive months, and the proportion of real estate loans in various loans has decreased by 0.95% year-on-year.
· Real estate trust scale has continued to decline since June 2019, and the balance of real estate trusts has decreased by about 15% year-on-year.
· Financial management products invested in real estate non-standard assets have continued to decline in the past year, and the balance of related financial management products has decreased by 42% year-on-year.
·Bank invested in the real estate sector through specific target carriers and the scale of related businesses has continued to decline for 18 consecutive months, with the scale of related businesses falling by 27% year-on-year.
Three problems facing the launch of real estate tax
First, local fiscal pressure in the second half of this year is relatively high, and land transfer fees are still an important support. Recently, the "report cards" of fiscal revenue and expenditure in 31 provinces in the first half of the year were released one after another. According to the general public budget of , it can be seen that except for Shanghai's revenue and expenditure, there are surpluses in revenue and expenditure, the other 30 provinces and cities have no income to offset expenditure (see Figure 1 in Figure 3).
Figure 1: The gap in fiscal revenue and expenditure in various provinces and cities in the first half of 2021 (100 million yuan)
▲Data source: Wind, Provincial Departments of Finance, China Securities Research Institute; Sichuan Province has not disclosed the fiscal revenue and expenditure in the first half of the year. The data is
In the first half of 2021, the fiscal self-sufficiency rate in 14 provinces in my country exceeded 50%, and the top 5 provinces are Shanghai, Zhejiang, Beijing, Tianjin and Guangdong, accounting for more than 80%. The fiscal self-sufficiency rate in provinces such as Tibet, Qinghai, Gansu, Heilongjiang and Xinjiang is less than 30%. The top cities are basically areas with better land sales this year. If the real estate market declines, the fiscal pressure in most areas will be greater.
Second, light tax rate has been proven to fail. Currently, pilot cities that implement property tax include Shanghai and Chongqing. How are the property taxes calculated in the two places? The pilot Shanghai real estate tax implements a differentiated tax rate of 0.4% to 0.6%, while Chongqing's real estate tax is 0.5% to 1.2%. Let’s take a look at Shanghai. When a family owns a house per capita of more than 60 square meters (inclusive), when purchasing a second house, taxes must be paid at a tax base of 70% of the total price exceeding 70% of the total price. The transaction unit price is above 55,000 yuan and the tax rate is below 55,000 yuan and 0.4%. For example, if you are a family of three and currently live in a house of 120 square meters, you do not need to pay property tax (60 square meters per capita exemption). When you buy another house of 120 square meters, you need to pay property tax. The taxed area is 60 square meters (240 square meters of two houses, 180 square meters of exemption). If the unit price of the house is 55,000 yuan, the tax rate is calculated at a 30% discount of 0.4%, which is 9,240 yuan. This is the holding cost of a 6.6 million house for one year, and the holding cost is extremely low, which is a month's rent. Chongqing only imposes taxes on high-end housing properties, and the holding cost is relatively low. How can such a low tax rate hit housing speculation?
Third, the real estate industry is still an important support for stabilizing the economy. According to data released by the National Bureau of Statistics, the added value of GDP contributed by the real estate industry in the first half of 2021 was 3974.2 billion yuan, accounting for 7.47%, exceeding 0.13 percentage in 2020. The new book "Real Estate and China's Economy" published by Tongce Research Institute has conducted detailed research on the underestimation of the contribution of the real estate industry to the economy. After recalculating the own housing according to market pricing, the contribution of the real estate industry to GDP exceeds 13% ( see Table 1), which has exceeded the level of the real estate industry in developed countries such as the United States and Japan in the current period.
Table 1: Assessment of added value of my country's real estate industry and its contribution to GDP
▲Data source: National Bureau of Statistics, compiled by Tongce Research Institute
Note: Please read "Real Estate and China Economy" (New Edition) Page 93
From the perspective of the industry correlation of real estate, the complete consumption coefficient of the 42 standard classification industries divided by the Bureau of Real Estate and Statistics is greater than 0, which shows that the real estate industry has a backward relationship with all industries, which can drive the development of other industries. Relevant reports show that my country's real estate industry consumes 30% of domestic steel and 25% of cement, which also has a strong driving effect on traditional manufacturing.
The possible impact after the launch of real estate tax
From the current situation, it is unlikely to launch real estate tax similar to Shanghai or Chongqing models. There are two reasons:
First, because Shanghai and Chongqing are already pilot cities, if it is just the promotion of these two models, the wording of piloting in first-tier cities will not be proposed. And from the actual results, the property tax policies in Shanghai and Chongqing are invalid and do not play their due role.
Second, in the interview, experts made it clear that the previous pilot projects were still far from the real estate tax. The current pilot projects are based on the real estate tax system in the common sense of various countries.
Based on this, it can be inferred that the real estate tax rate of First, pilot cities will definitely increase, which will significantly increase the holding cost of multiple houses . It will definitely not be as we calculated above that holding a house of 6.6 million yuan, and the annual real estate tax is only 9,200,000 yuan. At present, the nominal tax rate of real estate tax internationally is basically 1%-3%. After deducting various preferential and exemptions, the actual tax rate is 1%-2%. In the interview, it was also disclosed that the tax rate will not exceed 1%, which means that the core first-tier cities may have the highest tax rate and will be levied at 1%. If this is the case, if you purchase another house with a limit of 10 million or more as an improvement or investment, the annual holding cost will reach 100,000 yuan, which will greatly increase the holding cost of investing in housing. Second, the area of exemption may be reduced to . The current per capita living area of urban residents is about 40 square meters. If the per capita exemption is reduced by 60 square meters per capita, it is equivalent to the reduction and exemption from the national average. Although real estate tax should also be "adopting policies based on the city" in the future, the gap in various indicators will not be too big. This time, experts also emphasized that it will expand the from the front line to a small number of third and fourth lines. Some people may say that real estate tax mainly hits groups who hold multiple houses. If you think so alone, you will be wrong. Experts emphasize that it is an important part of local finance in the future and may replace land transfer fees. If large-scale reductions and exemptions are made, the support role of fiscal revenue will be lost.
Therefore, the future real estate tax will significantly increase the cost of house holding and will not achieve large-scale comprehensive exemption. If it is launched, it will have three important impacts:
1. A large number of improvement demands will disappear, which will directly lead to a downward trend in the real estate market.
In the book "Real Estate and China Economy", we have conducted a detailed calculation of the efficiency of residential use in the real estate market. The current utilization efficiency of residential market is about 88.12%. The main reason is that most of the improvement groups have not sold the original housing in the process of purchasing second or three housing units within the scope permitted by the policy. The proportion of holding multiple housing units but idle housing is about 11.88%. The proportion of core first- and second-tier cities and third- and fourth-tier cities with strong economic strength will be higher. If real estate tax is introduced at this time, a large number of multiple sets of improvement demand will disappear, which will further cool down the market.
Second, exacerbating the rate of decline in the downward cycle of real estate may cause the market to " hard land ".
The cycle presented by my country's real estate market is actually the policy cycle, and what actually works is the currency cycle. From the trend point of view ( see Figure 2), the real estate market in will enter a downward cycle since June this year, and is expected to enter a substantial decline stage (below line 0) by June and July next year. If real estate tax is issued at this time, it will aggravate the market's downward trend. Even if real estate tax is only piloted in first-tier cities and a small number of third- and fourth-tier cities, it will also cause a "shadow effect" to other cities. Most third- and fourth-tier cities will expect to introduce real estate taxes in the future, and their attitude towards buying a house will be reversed. The National Bureau of Statistics announced that the national commercial housing sales area in July fell by 9.5% year-on-year and 40.6% month-on-month. The China Banking and Insurance Regulatory Commission recently gave "five continuous declines in real estate financing". Under such a downward trend, the issuance of real estate tax will aggravate the market's downward trend and may cause a "hard landing" in the real estate market.
Figure 2: my country's real estate market cycle trend
▲Data source: Tongce Research Institute compiled
Third, it may lead to concentrated "selling" of second-hand houses.
Since establishing its pillar industry status in the real estate market in 2003, investment and speculation in real estate has become the main flow of hot money in society. In our book "Real Estate and China's Economy", we have a detailed estimate of the demand for real estate investment, which is about 9.9%. At present, the market stock of commercial housing in my country is about 400 trillion yuan, which means that there are about 40 trillion yuan of speculative capital in housing. If the holding cost increases, it will inevitably cause them to sell and cash out in the second-hand market of , , and leave the scene. Once the trillions of funds flow out of the real estate reservoir, where will it place this day of funds? These funds will not enter the real industry, because the funds for early housing speculation were basically transferred from the real industry, and the current difficulties faced by the real industry are even greater.If these money flows abroad, it will inevitably have a huge impact on foreign exchange and exchange rate . If you stay in my country, wherever the hot money goes, basically inflation will be a disaster. Don’t forget the “garlic ruthlessness”, “beans, you play” and “sugar Gaozong” that our country has experienced. The second-hand market will in turn further affect the new housing market, which may open the curtain of a "bloody storm" in the real estate market.
Whether from the current domestic and international environment and the pressure facing economic development in our country, or from the situation in this field of the real estate industry, in addition to the problems faced by the introduction of real estate taxes mentioned above, a large number of real estate companies are also having problems due to the cash flow of , so the second half of this year is not the best time to issue real estate taxes. The downward trend and turmoil in the market are not only not a requirement for stability in the real estate market, but may also trigger risks in systemic finance. Therefore, the possibility of real estate tax issuance in the second half of this year is very small. If you want to choose the time to issue it, it is generally suitable to choose the upward cycle of the real estate market. According to our cycle analysis, this time will be around June 2023 to July 2025.
—The author of this article—
