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China’s housing market is like a casino. Can a property tax tame it?

NANJING (CHINA) — China has tried just about everything to tame a property market in which home prices sometimes jump around like the value of bitcoin.

A man rides an electric tricycle past residential apartment blocks under construction on the outskirts of Beijing. China is considering adopting a property tax that could dramatically reshape the world’s second-largest economy. Photo: Reuters

A man rides an electric tricycle past residential apartment blocks under construction on the outskirts of Beijing. China is considering adopting a property tax that could dramatically reshape the world’s second-largest economy. Photo: Reuters

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NANJING (CHINA) — China has tried just about everything to tame a property market in which home prices sometimes jump around like the value of bitcoin.

Over the years, in one city or another, it has limited mortgage lending. It has tried to halt purchases of homes by people who own one. It has plowed billions of dollars into building new homes that regular Chinese people can afford.

Now the Chinese government is considering adopting something that, while familiar to homeowners in the United States and elsewhere, could dramatically reshape the world’s second-largest economy: a property tax.

Living in a place without property taxes may sound appealing, but a growing number of experts and policymakers in China say the absence of one has helped destabilise a vast and crucial part of the Chinese economy.

Many investors snap up homes — in China, they are mostly apartments — hoping to ride a price surge.

In the biggest cities, property prices on average have at least doubled during the past eight years.

But vast numbers of apartments in many cities lie empty, either because the buyers have no intention of moving in or renting out, or because speculators built homes that nobody wants.

In October, China’s president Xi Jinping told the nation that “houses are built to be inhabited, not for speculation.”

Real estate fervour was on display on a chilly recent morning at an apartment complex in the eastern city of Nanjing. Would-be buyers spent the night in tents and under quilts, lined up for a chance to buy.

So many cars arrived, according to people who were there and photos that went viral on social media, that traffic seized up for a mile around the sales office.

“There were a lot of speculators,” said Mr Han Changlong, a Nanjing real estate inspector who attended the event. “Some people believe that if they don’t buy now, homes will become more expensive in the future.”

A tax is far from assured, and lawmakers have not indicated that one will be on the table when they hold their annual meeting in March.

Still, experts say momentum is building.

Mr Xiao Jie, the finance minister, wrote in late December in People’s Daily, the Communist Party’s official newspaper, that leaders at a major party meeting two months earlier had favoured instituting such a tax. The slogan, Mr Xiao said, would be “Legislation first, full authorisation, move forward step by step.”

A property tax could have a profound effect on a crucial part of the nation’s economy.

Real estate makes up nearly three-quarters of the assets of Chinese households, according to the Survey and Research Centre for China Household Finance, an academic institute in Chengdu, in south-western China.

That compares with a bit more than one-third for US households. Roughly a fifth to a quarter of China’s annual economic output comes from property and related industries, like furniture-making.

But housing is also the source of some of the country’s biggest booms and busts. Local investors — many of whom do not trust the country’s stock markets and are forbidden by Beijing to move most of their wealth abroad — simply throw money at housing.

Real estate broker fees, often as low as 1 per cent, are a small fraction of the typical 6 per cent in the US.

Mortgage lending has leapt during the past two years, adding to the potential for financial turbulence.

Housing in Beijing and Shanghai has soared beyond the reach of even many affluent families and speculators — at least for now.

Other factors spur frantic buying, such as access to local government services, as well as cultural forces that emphasise homeownership.

Mr Ma Xiaoguang, a 31-year-old mechanical engineer, and his wife recently bought an apartment for US$227,000 (S$ 299,206) in the farthest outskirts of Shanghai so their daughter could get permission to attend a nearby public school.

But they do not live there, instead renting a place in a more expensive neighbourhood. They found a tenant for their purchased apartment, but for only US$180 a month.

“I know the yield is too low,” Mr Ma said, “but I want to have a home, and an apartment makes my family and me feel safe.”

It is not clear whether a property tax would cover all homes, or just second ones.

Much of China would be starting from scratch, as the country does not have decades of real estate records like the US and other places.

One longtime obstacle — figuring out who owns which apartment — appears to have been resolved. For years, many corrupt government officials accumulated homes and resisted creating a database of real estate records.

But motivated partly by Mr Xi’s nationwide corruption crackdown, the Ministry of Land and Resources announced in September that it had just completed a database of land ownership across the country.

Real estate executives say the database encompasses the beneficial owners of real estate held through companies and investment partnerships, although wealthy individuals in China have been known to disguise the extent of their holdings.

China’s lack of a property tax is a legacy of the 1949 Communist takeover.

Land ownership was gradually restricted, then banned. When the leadership allowed private citizens to become homeowners again after Mao’s death, it created a system under which the government leased land to developers and others.

Introducing the tax would be a delicate task for a government prone to ham-handed policy changes. It could damage demand in places where thousands of new apartments are still coming onto the market.

“What would happen if real estate prices keep stable?” said Mr Li Xunlei, the chief economist at Zhongtai Securities in Jinan, in the east. “We have many speculators, and they may find it unnecessary to hold real estate that does not increase in value.”

However, cultural forces could set a floor.

Young people in China are expected to buy a home before they can get married. Usually the groom is responsible for buying a home, though the bride’s family frequently chips in.

Thanks to the now-abandoned one-child policy, China has more young men than young women, setting off a male-led surge to buy homes to make themselves more appealing husbands.

Professor Shang-Jin Wei, a Columbia University business academician, found that rising real estate price increases in 35 big cities were strongly correlated with lopsided gender ratios.

Mr Jerry Lu, a 24-year-old insurance salesman, said he was determined to buy an apartment so his girlfriend would feel more secure.

He waited in a long line in November in his hometown, Deyang, in the south-west, and bought one of the last apartments available, incurring a mortgage that will claim a third of his income for monthly payments.

“I don’t care if there is a real estate tax next year,” he said. “No matter what, I need to buy one.” THE NEW YORK TIMES

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