Govt to pilot property tax in more cities

China's State Council, the cabinet, plans to include more cities to levy property tax in 2012 after Shanghai and Chongqing were chosen as the first pilot cities a year ago, Economic Information reported Friday, citing information from the official website of the central government.

Despite speculation about potential pilot cities, first-tier cities are better choices because their housing markets are relatively more mature and second-hand houses there have replaced newly built houses as the main body of sales, said Chen Guoqiang, vice-president of China Real Estate Society.

Guangzhou and Shenzhen are the prime candidates of all the qualified cities boasting a thriving property market, according to Wang Haibin, a chief analyst of World Union, a property market consultancy.

However, the latest report by Founder Securities showed that well-equipped second-tier cities are more likely to be favored.

Property tax can help curb speculative home purchases as people have to take the cost of carry into account when deciding to buy houses, said Chen.

The tax is supposed to evolve into a long-standing system rather than a temporary means to control real estate market, he added.

In addition to its important role in reducing market bubbles, property tax will also bring in substantial revenues for local governments suffering financial difficulties, said Professor An Tifu from Renmin University of China.

But the problem with the current property taxation is setting up a good coordination mechanism to ensure equality in levying property tax on individuals. It is often very difficult to tell qualifiers apart from duty-free houses considering the complex housing situations in China, warned Yang Zhiyong, a researcher at National Academy of Economic Strategy under Chinese Academy of Social Sciences.

According to a study, an improved formula is to tax stocking houses as well as new homes.

In light of a fair tax law, the taxation should cover both luxury and common houses unless they are defined as property concerning the residents' right to exist, the study said.

Some rural houses with limited property rights could also be included to benefit farmers and local governments. This will be a good way to legitimize these types of houses, which rarely meet current urban land regulations, said Yang.