China began charging a capital gains tax on the sale of existing homes on August 1. According to Hong Kong-based Commercial Daily, the market for existing homes suddenly cooled off in many cities including Beijing, Shanghai, Tianjin, and Hangzhou.
The report cites statistics from several real estate brokers, which indicated that between July 26 and July 31, previous to the implementation of the capital gains tax, the number of transactions during those five days surpassed the total number of transactions which occurred during the first 25 days of July. Since the beginning of August, however, the market has dropped from the boiling point to freezing.
On August 1, fewer than 100 units were sold in Beijing, which represents a dramatic decrease from those last days in July, when the daily average was about 1,200 transactions, says the report.
The same is true in Shanghai. Ms. Qu Ling, Deputy Administrator for Centaline Real Estate Agency's Hongkou District Division in Shanghai, said that on August 1, they received "only a few phone calls to our offices, and almost no clients. It was not comparable to a few days ago at all."
In Tianjin, the real estate transaction center in Nankai District saw a drastic decrease in traffic as well. The transaction hall, which was full a just a few days ago, is much quieter. The staff said that there were almost no new registrations on August 1 for sales of existing homes. Almost everyone there bought or sold at the end of July, and they were only there because they were late in registering. People are apparently waiting and watching to see the possible impact of the new tax.
Also, according to the report, real estate specialists in China say that with a capital gains tax, it would be very difficult to make a profit if an owner sells within five years of buying a property.
Ms. Zhang Xiaopei, Director of Planning at the Beijing-based Homelink Real Estate Company, said that the deed tax for an average home is 1.5 percent of the total sale price. The stamp tax is charged twice, once at buying and once at selling, totaling 0.1 percent. If an owner sells within five years of buying a property, the sales tax is 5.5 percent. So, the total of the three taxes is 7.1 percent of the sale price.
In addition, the seller needs to pay personal gains tax, decorating fees, mortgage interests, and brokerage fees. Based on these figures, the property has to appreciate 17 to 20 percent a year for someone to be able to sell it within one to two years of buying and make a profit.
