Angry Storm Over China’s Housing Bubble Measure

By Michelle Yu, Epoch Times
October 6, 2010 1:47 am Last Updated: October 6, 2010 1:52 am

The announcement, in Beijing, of a homeowner’s tax has aroused a storm of discussion on Chinese Internet forums. While officials have stated that the tax intends to bring down home prices and discourage real estate speculators, average home buyers say the tax is unfair and a huge burden to them. Meanwhile, state entities keep feeding the housing market bubble.

The new tax announcement came after recent failed measures by the regime to cool the country’s overheated real estate market; one measure being the attempt to curb speculative purchases.

Statements by experts in support of the tax have blamed speculation investments by China’s affluent as being the main cause of soaring home prices. They argued that the tax will stop speculative property purchasing since the cost of home ownership will go up.

This argument has convinced quite many people into believing that the new homeowner property tax will eventually lead to lower home prices.

The Housing Bubble

Economist and housing market expert Dr. Liu Zhengshan told Voice of America earlier last month that China’s housing bubble had reached a critical point by all standards of measurement. “In cities like Beijing and Shanghai, the housing price is over 20 times higher than average annual household income,” he said.

In March, housing prices in China’s 70 major cities increased 11.7 percent over the same period last year. In Shenzhen the price increase reached 95 percent, while in Beijing it was 88 percent.

In a statement posted on the Ministry of Finance’s website on Sept. 30, Beijing revealed its decision to implement pilot programs of a homeowner’s property tax in certain cities, saying it was, “necessary to ensure a healthy property market.” And that the tax would further, “boost income distribution adjustment and economic restructuring.” The statement did not specify when and where the pilot programs would be implemented.

The vague wording of the Ministry’s statement was likely intended to make the public believe that the tax would benefit the people. However it is likely that the majority of Chinese received the news with distrust, apprehension, and outright sharp disapproval.

A poll on China’s popular website sina.com shows that 62 percent of 4,905 respondents don’t believe the residential property tax will be effective in lowering home prices.

Another poll on ifeng.com with close to 150 million respondents shows 54.3 percent saying the new tax will just be a burden for ordinary people.

However, the actual disapproval rate may actually be higher as the regime is known for hiring people to manipulate online opinions.

A comment on ifeng.com by a blogger named Shen Chun is representative of the tax supporters’ opinions. “The root cause [of high home prices] is that there are too many rich people. They have grabbed too many houses. A reasonable taxation system must be established,” Shen said.

Tax Unfair to ‘Real’ Home Buyers

But most people don’t agree. On popular websites sina.com, people.com.cn, and ifeng.com, comments about the proposed tax are overwhelmingly negative. Many people don’t believe that speculators will stop buying up real estate because of the property tax.

A sina.com blogger nicknamed “Real Estate Elite” said, “The property tax does not change the fact that real estate investors can make a profit. It doesn’t matter how much I make, the point is that I’m making a profit. From an investor’s perspective, I don’t believe the tax will stop investors from purchasing.”

Many others say they believe it is ordinary homebuyers who will feel a much deeper cut than investors.

Blogger App230 said in an ifeng.com post that an investor would not need to pay too much tax as they usually own a property for only two or three years. “For real homebuyers, the tax is a long-term burden. Assuming a 1 percent for a 1 million yuan (approx. US$150,000) home, a real homeowner will have to pay an extra 800 yuan (US$120) every month.”