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"For the property market, a property tax policy could potentially negate all the benefits of the '517' policy."

Text/ Ba Jiuling

I only heard the sound of footsteps on the stairs, but no one came down.

Many policies have experienced similar twists and turns, and real estate tax is a typical example.

Recently, there has been a new tapping sound of footsteps, and the sound is much different than in previous years.

The "Decision of the CPC Central Committee on Further Comprehensively Deepening Reforms and Promoting China's Modernization" adopted at the Third Plenary Session of the 20th CPC Central Committee has a new statement on real estate tax - "improving the real estate tax system".

There is a deep connection between "real estate tax" and the Third Plenary Session of the 18th CPC Central Committee.

Its first steps originated from the "Decision of the CPC Central Committee on Several Issues Concerning the Improvement of the Socialist Market Economic System" adopted at the Third Plenary Session of the 16th CPC Central Committee in 2003, which proposed "implementing tax and fee reforms for urban construction, levying a unified and standardized property tax on real estate when conditions are met, and canceling relevant fees accordingly."

At that time, the "real estate tax" had not yet taken shape, and it was replaced by the property tax, which had the same meaning of "taxing the housing holding stage". Later, in order to distinguish it from the property fee, the name was updated to "property tax" in 2009.

Ten years later, in 2013, the "Decision" of the Third Plenary Session of the 18th CPC Central Committee proposed to "accelerate the legislation of real estate tax and promote reform in a timely manner."

This is the first time that real estate tax appears in an official context.

From "property tax" to "real estate tax", the coverage is completely different.

What they have in common is that they both collect taxes during the "holding" stage; the difference is that property tax is an "old tax" that is currently exempt from residents' self-occupied homes; real estate tax is a "new tax" that will integrate the existing property tax and urban land use tax and be levied on both residents and businesses.

Financial commentator Liu Xiaobo believes thatThe future real estate tax will be a system, not a single tax.It includes urban land use tax, land value-added tax, farmland occupation tax, value-added tax of real estate companies, value-added tax and personal income tax of individuals selling houses, stamp duty, and property tax during the holding stage, etc. Of course, it also includes land transfer fee income.

From "property tax" to "real estate tax", the expectations are very different

◎ First, it is expected to increase local fiscal revenue, or even replace "land transfer revenue". In 2023, property tax accounted for 2.1% of local fiscal revenue. Ideally, the new tax will inject incremental revenue into local finances, which was a focus in the past, but is a pain point now.

◎ The second is to approach it from the perspective of the gap between the rich and the poor and common prosperity, hoping to use property tax as a means of income regulation.

However, Guosen Securities believes in a research report that property tax is the "poetry and distance" of finance.In extreme cases, taking 2020 as an example, if property tax were to replace 50% of land transfer fees (the main source of local finances), the tax burden would be four times that of personal income tax.

They believe that "the reason why the pilot program has to continue for ten years is that the perfect tax rate has not been found."

Zhang Bo, director of the 58 Anjuke Research Institute, believes that land finance will definitely be eliminated in the future and replaced by tax finance, but the taxation here is not limited to real estate tax, and real estate tax does not necessarily have to become a pillar. For many small and medium-sized cities, real estate tax is unlikely to become a pillar.

Eleven years later, the statement changed to "improving the real estate tax system."

From the "real estate tax" legislation to the real estate "tax system", the nature has changed dramatically.

Liu Xiaobo's statementThe reason for the new proposal is probably to avoid the misunderstanding of "tax increase".In the future, taxes will increase in the real estate holding stage, but taxes will be reduced in the transaction stage. Therefore, it is more appropriate to say that it is "improving the real estate tax system."

Therefore, it is obviously a misunderstanding to think that improving the tax system means collecting real estate taxes.

The misunderstanding may reflect a common psychological state: most people know almost nothing about property tax, and only know that it will come sooner or later. Along with this certainty are two fixed questions:

"How will it be collected? When will it be collected?"

We have references on how to levy taxes, and we also have deductions on when to levy taxes.

Let’s talk about references first.

For domestic experience, we can only look to Shanghai and Chongqing.

In 2011, Shanghai and Chongqing announced the launch of a property tax pilot program.

Specifically, Shanghai residents who purchase a second or subsequent homes (including newly purchased second-hand existing homes), as well as non-Shanghai residents who purchase new homes, need to pay property tax.

Chongqing citizens are required to pay property tax on single-family commercial residences they already own, newly purchased high-end housing (housing with a transaction price per unit of built area that is twice or more the market average price), and second or more ordinary housing purchased by "three-no" people (no household registration, no business, no job).

The taxation details are also different in the two places. The calculation formula for the pilot property tax is:

“Amount of property tax payable = taxable area of ​​newly purchased housing (building area) × unit price of newly purchased housing × taxable value × tax rate”

Shanghai mainly determines the boundary price of different tax rates. In 2024, the boundary price in Shanghai is 91,954 yuan per square meter. If the transaction price of newly purchased housing is less than or equal to 91,954 yuan per square meter, the tax rate is 0.4%, and if it is greater than the tax rate is 0.6%.

At the beginning of this year, Chongqing adjusted the tax rate to 0.5%, which was previously 0.5%, 1% or 1.2% according to the value of the house. In addition, the taxable value was reduced from 100% of the housing transaction price to 70%, and the tax-free area was increased from 100 square meters to 180 square meters.

It is important to note that the pilot property tax collection targets in the two places are basically newly purchased homes from the date of the pilot, and less involve homes purchased in the past (except in Chongqing, where single-family commercial homes held in the past also need to pay property tax, and in Shanghai, where the taxable area of ​​the second and above houses must be calculated with the area of ​​existing homes included).

In theory, property tax is a holding tax, but the pilot cities of Shanghai and Chongqing prefer to levy new taxes.

As for contributing to local finances, there is even less. Judging from the changes in the details in the past two years, the tone of the property tax adjustment in Shanghai and Chongqing is "tax reduction and burden reduction"; judging from the tax threshold, the vast majority of people are currently not within the scope of paying property tax.

There are not many cases in China, but we can make up for it abroad.

According to Liu Xiaobo, there are mainly three types of property tax collection: American, Japanese, Singaporean and British.

Property tax in the United States is levied at about 1%-2% of the total assessed value of the house + land. The value assessment of the house and land is not fixed and will be reassessed at a certain period.

Japan taxes land and houses separately. The land tax rate is extremely low, and the taxable value of houses is discounted (depreciated) every year.

Singapore calculates the property tax based on the annual value of each house × the property tax rate.The so-called annual value refers to the net rental income that can be earned from renting out a house for one year, assessed by the Singapore Inland Revenue Authority based on market and housing conditions.

The UK does not have a special property tax for the holding stage, only municipal taxes, which follow the house and are paid by whoever lives in it (rental houses are paid by tenants), with the nature of "property tax + property management fee + cleaning fee", but the tax rate is also very low. Municipal taxes are paid monthly, and the annual fee is mostly between 1,000 and 3,000 pounds.

As for when to levy the tax, this is a more complicated proposition.

For now, the answer is probably no.

The conclusion comes from three real estate experts. Next, let's take a look at how they came to this conclusion.

Big Head has something to say

Ding Jiangang

Dean of Zhejiang Daily Media Real Estate Research Institute

The "Decision" adopted at the Third Plenary Session of the 20th Central Committee did not mention real estate tax. Many people narrowly understood the sentence "improve the real estate tax system" as real estate tax.

My personal understanding,Real estate tax will not be fully implemented for at least the next five years, or even nine years.

This is deduced from the time of legislation. The Legislation Law stipulates that any new tax type and tax rate requires legislation. However, the current NPC Standing Committee did not include real estate tax in the legislative plan. In other words, if real estate tax is to be legislated, it will not start until the next NPC Standing Committee in 2028.

Even if the next National People's Congress completes the legislation within five years, it will take until 2033, which is nine years later.

Therefore, in the short term, real estate tax will not have much substantial impact on the real estate market.

Since the proposal to promote real estate tax legislation was put forward in 2013, progress has been slow in the 11 years to date because of two obstacles.

◎ The first is the legal obstacle.

The land in our country is state-owned and collectively owned in rural areas. No individual has the ownership of the land. People often talk about the 70-year property rights of residential buildings, which actually refers to the 70-year right to use residential land. In theory, after the 70 years expire, the land under the house has nothing to do with the owner.

Although the Civil Code passed in 2021 (actually the Property Law of 2007) stipulates that "the right to use residential construction land shall be automatically renewed when the period expires, and the payment or exemption of renewal fees shall be in accordance with the provisions of laws and administrative regulations."

If it is free and automatically renewed, then theoretically China's residential land is unlimited, and theoretically the owner has ownership of the land. This is inconsistent with the provisions of the Constitution. Article 10 of the Constitution of the People's Republic of China stipulates that urban land belongs to the state.

If the land lease is renewed, land transfer fees must be paid again, which means that within the limited period of use, the owner must pay both the land transfer fee and the real estate tax.

Although land transfer fees are non-tax charges in local government finances, it is difficult to clearly define whether they have tax implications. The use value of the land also includes the land transfer fee, so using the assessed value of the land as the tax base may be suspected of taxing on top of tax. However, the most important legal obstacle is that the owner of the house does not have the property rights of the land, but only the right to use it for a few decades.

This will create a gap in real estate values.

For example, a person spends 1 million to buy a house. In the 69th year, the house appreciates to 10 million. This appreciation must be the appreciation of the land, not the appreciation of the reinforced concrete house on the land (because the design life of civil buildings is only 50 years, and a 70-year-old house is theoretically worthless). In the second year, the land where the house is located will either expire or require a land transfer fee to renew.

At this time, if the real estate tax rate is 1%, and the owner has to pay 100,000 yuan, will he be willing to pay the real estate tax? If the value function is used to evaluate, the value of the house is close to zero at this time, so how can the real estate tax be collected?

◎ The second is market barriers.

The property tax piloted in Shanghai and Chongqing in 2011 is completely different from the real estate tax we are talking about today. For the purpose of the pilot, the concept of property tax in 1986 was applied.

The property tax pilots in Shanghai and Chongqing have not met expectations. Shanghai only collects taxes on incremental housing, not existing housing, and Chongqing only collects taxes on single-family homes. Due to the narrow tax base and low tax rate, the property tax collected in this way has contributed little to local finances. Some even believe that it cannot even cover the human and material costs of taxation, and of course it cannot completely change the local government's reliance on land finance.

Moreover, the so-called pilot projects in these two cities have no legal basis so far.

Finally, the expected impact of property taxes on the real estate market cannot be ignored.

With the introduction of real estate tax, homebuyers will also need to pay regular fees for holding the house every year. If the house is valued at 5 million this year, a 1% tax rate will be charged of 50,000. If it is 4 million next year, a tax rate of 40,000 will be charged. Regardless of how much the house price increases or decreases, the amount must be paid according to the tax rate.

This situation will have a very serious impact on real estate expectations and will cause no one to dare to hold more houses.

More importantly, the current real estate market is completely unable to withstand the impact of the introduction of real estate tax on market confidence and expectations.

Zhang Bo

Dean of 58 Anjuke Research Institute

The Third Plenary Session of the 18th CPC Central Committee did not send out a signal that property tax on personal residences will be fully levied in the next 3-5 years.

Judging from the wording, "further improve relevant tax policies" emphasizes the word "improve" rather than "reform" and other phrases. Therefore, there will be no major adjustments to real estate-related taxes, especially for real estate tax, there is no direct mention of words such as "pilot expansion" and "full implementation".

It is also impossible to impose real estate tax on individual residences at the national level at present. Once the real estate tax is fully implemented, it will definitely be a negative signal for the real estate market. Some property owners may be eager to sell their properties to reduce the tax burden, which will further increase the downward pressure on housing prices and will also be detrimental to the sales of existing properties.

For the property market, a real estate tax policy may cause all the benefits brought by the "517" policy to be reduced to zero.

In addition, judging from the situation in many developed countries such as the United States and Japan, the real estate tax (the name may vary from country to country) levied in a region will be used comprehensively for education, medical care, public security and other projects in this region.

However, it is difficult for my country to completely copy this foreign model, because public facilities such as education are coordinated by local governments. This will indeed mean that people who pay real estate taxes cannot directly feel the direct investment of real estate taxes in the area where they live. It is more of a large-scale city-level policy where the money is taken from the people and used for the people.

In terms of policy making, future real estate tax collection needs to take into account the interests of people who have urgent need to purchase their first home. One direction is to exempt real estate tax for individuals or families’ first homes within a reasonable area.

For individuals or families with two or more sets of houses, appropriate reductions and exemptions can be considered based on the land use period. For example, the longer the remaining land use rights, the lower the collection rate, and the shorter the remaining land use rights, the higher the collection rate. After the land use rights expire, they can be collected according to the normal ratio.

If the tax is levied based on rent (the amount of real estate tax is calculated based on rental income), it may cause the owner to pass on the tax costs to the rent.

But the facts are not necessarily the same. House rents themselves are still affected by supply and demand. In addition, the number of affordable rental housing in first- and second-tier cities is increasing rapidly, which will have a direct impact on market rents.

In other words, landlords will indeed have the urge to add property taxes to rents in the future, but whether or not they can do so is usually not something that can be decided by individuals, as it depends on the market rental level.

Liu Xiaobo

Financial Commentator

Public account "Liu Xiaobo Talks Finance"

To improve the real estate tax system, it mainly depends on promoting legislation, and it will take some time for it to be truly implemented.

The real estate tax during the holding phase is a direct tax. The collection of direct taxes will be difficult and may have to be tied to personal credit (if the real estate tax is in arrears for a certain period of time, it will be difficult to move forward).

In addition, ordinary people only have the right to use the land under our houses for 40 to 70 years. They have already paid the land rent when buying the house. If we impose real estate tax again, we need to explain the rationale to the people and set a reasonable tax rate. We cannot reduce people's consumption capacity and willingness to have children due to taxation.

The hanging sword effect of real estate tax is very obvious, especially for wealthy families. I hope to suggest that a rational and affordable plan be announced as soon as possible, such as a non-progressive punitive tax rate (the more houses you own, the higher the tax rate), so as to encourage wealthy families to buy more houses, provide more rental housing for the society, and truly stabilize housing prices and rents.

There are currently many controversial proposals for real estate tax collection on the Internet, which have disrupted people's hearts and the market.

Author of this article | Tian Weifeng | Half Moon and Wind | responsibilityEditor | He Mengfei

Editor-in-Chief | He Mengfei | Image source |VCG