First Day Investigation of Property Tax: Shanghai Transfer Booms, Chongqing Threshold at 9941 Yuan
January 28th was the first day of the implementation of the property tax in Shanghai, as well as the first day of the implementation of the State Council's latest real estate market regulation policy, known as "Eight Measures" by the Ministry of Finance, which included a business tax reform. The Pudong New Area Real Estate Transaction Sub-center in Shanghai was bustling with people, and emotions were filled with panic.
The editor of NetEase Finance observed on-site at the Pudong New Area Real Estate Transaction Sub-center, where there is an extremely large volume of real estate transactions in Shanghai, that most of the people coming to the transaction center were there to handle transfer procedures, while simultaneously pre-paying other taxes such as deed tax. Regarding the property tax, the majority were there to inquire about specific execution details, such as whether their properties would be taxed and how it would be implemented.
In Chongqing, the property tax has been described by the industry as all bark and no bite. According to information obtained by NetEase Finance, there are approximately only 2000-3000 detached commodity residences in Chongqing, making the impact rather limited.
NetEase Finance also exclusively learned that for high-end residential properties under the Chongqing property tax, the threshold for taxation in 2011 will be set at 9941 yuan per square meter.
A flood of people came to consult about the property tax, creating an atmosphere of panic.
Mu Jun (a pseudonym) had experienced fluctuating emotions over the past two days. The introduction of the "Eight Measures" made him worry that his tax burden would increase, and as a new resident of Shanghai without obtaining a local hukou or residence permit, he was concerned about having to pay the property tax. However, after consulting, he found that he was not within the scope of collection.
On the first day of the implementation of both the business tax reform and the property tax, many people came to the Pudong New Area Real Estate Transaction Sub-center in Shanghai to inquire about the property tax, but the majority were mainly there to handle business tax payment procedures.
From the perspective of the editor of NetEase Finance conducting on-site interviews, the reactions in the Shanghai real estate transaction market due to the overlapping and immediate execution of these two policies were twofold: one, expecting stronger tax and fee adjustment policies in the future, leading many people to rush to complete transfer procedures and prepay all taxes, showing concerns about more stringent real estate tax control policies; two, the majority rushed to inquire about the property tax, but even more came to handle business tax payment procedures.
It is worth noting that several traders interviewed on-site by the editor of NetEase Finance stated that this time the government acted very quickly. For instance, from the announcement of the detailed rules of the business tax reform by the Ministry of Finance to its implementation, there was no buffer time, leaving them unprepared and unable to react in time, resulting in additional taxes they did not anticipate.
Song Huiyong, Research Director of Shanghai Zhongyuan Property Advisory Co., Ltd., told the editor of NetEase Finance that whether it was the "Eight Measures" or the property tax, both were implemented swiftly, basically giving no opportunity for the market to catch its breath and rush for a last-minute opportunity. This reflected the higher urgency required by the management level for regulation, as well as the intention to resolve the market's speculation and chase for policies, eliminating fluctuations caused by market awareness.
Regarding the property tax, most transactions were still in the consultation phase. The Shanghai version of the property tax mainly targets newly added properties, so those who signed contracts before January 28th are excluded. Unlike the business tax, which was immediately implemented regardless of whether the buyer was from Shanghai or if it was their second home, the property tax applies to all newly purchased homes.
The property tax is calculated from the date of online signing. Transactions contracted before January 28th are exempt from property tax. Lou Wei, a real estate intermediary who came to process the transfer procedures with the seller, told the editor of NetEase Finance.
Judging from the emotions of the people at the Pudong Transaction Center, they were worried about even stronger tax and fee control policies in the future. Therefore, they rushed to settle all taxes today to avoid repeating the awkward situation of today in the future. The mood on-site was relatively panicked, with many people looking bewildered.
Worried about stricter personal income tax collection
It's not surprising that they rushed to pay taxes today. Song Huiyong said that they were worried that personal income tax might also increase in the future. Based on the current situation, the possibility of stricter personal income tax collection is extremely high.
Chen Zhengqi, manager of the Changshu Road store of Century 21 Real Estate Company, told the editor of NetEase Finance that according to current practices, when selling a property that has not been owned for five years, sellers generally have two options for paying personal income tax: one is to pay 1% or 2% of the total sale price of the house as personal income tax (1% for ordinary residences, 2% for non-ordinary residences) if they cannot provide relevant documents such as the original value of the house and deed tax proof; the second option is to pay 20% of the difference between the purchase and sale prices of the house as personal income tax.
For example, a buyer purchased a (non-ordinary) housing unit three years ago for a total price of 1 million yuan and now sells it for 2 million yuan. If the difference is used as the tax base according to tax laws, he needs to pay personal income tax of (2 million - 1 million) * 20% = 200,000 yuan. However, according to the current common practice, he only needs to pay individual adjustment tax of: 2 million * 2% = 40,000 yuan, with a difference of 160,000 yuan in tax amounts.
Chen Zhengqi pointed out that the impact of personal income tax on buyers far exceeds that of property tax or even business tax. If such a huge difference becomes part of the transaction cost, it would be unimaginable for buyers.
Regarding the impact of property tax on housing prices, Song Huiyong believed that, based on the starting point of 60 square meters per person, it would bring many effects to improvement-type homebuyers. Specific improvement scales and necessities need to be re-evaluated. Due to the weakening support for improvement demands in terms of credit, the phenomenon of trading up from smaller to larger houses would increase, accelerating the transfer of mid-to-low-end houses to the lower end of the market. Moreover, under the dual pressure of property tax and purchase restrictions, market transaction volumes would experience slight fluctuations due to changes in improvement demand. The retreat of this group of customers with strong purchasing power would also put downward pressure on housing prices.
Notably, the property tax uses a single area indicator for determination, objectively encouraging buyers to choose smaller-sized properties that offer better convenience for work and life. As a result, improvement-oriented homebuyers targeting peripheral areas may be squeezed into central urban areas, driving up the prices of small-sized units in the city center.
Limited Impact of Property Tax on Detached Commodity Residences in Chongqing
"The property tax collection method introduced yesterday in Chongqing was really unexpected," remarked Wang Bo, Director of the Market Consulting Department at Chongqing Weilian Real Estate Advisory Co., Ltd. After nearly a year of preparation, the final Chongqing property tax primarily targeted owners of high-end properties, and its role in controlling housing prices and signaling a reduction was not obvious. The tax method mentioned that there are only about 2,000-3,000 detached commodity residences in Chongqing, implying that only 2,000-3,000 households would become the main taxpayers. The impact is indeed limited, Wang Bo added.
According to reports, the property tax that began levying in Chongqing on January 28th is mainly aimed at curbing high-end housing and reducing speculative and real estate flipping behaviors. "Chongqing's housing prices themselves are still not high," explained Mr. Xu from the Publicity Department of the Chongqing Finance Bureau to NetEase Finance. Compared to major cities like Beijing and Shanghai, Chongqing's housing prices remain relatively low, and the introduction of the property tax is to curb speculative real estate behavior.
However, the proportion of high-end residences in Chongqing is limited, and the purchasing power level of local residents is even more restricted. The primary customers for high-end residences come from executives of foreign enterprises, accounting for approximately 40%-50% of purchases, while the rest are bought by wealthy individuals in Chongqing. Within such a small transaction range, facing the burden of property tax, real estate agencies previously specializing in luxury housing have gradually transformed and started moving away from the high-end commercial housing market in Chongqing.
To avoid the impact of property tax on the market, Ganyuan Real Estate, one of the main real estate intermediaries in Chongqing, began strategic layouts in tourism real estate in other regions as early as April last year. Redirecting the attention of wealthy Chongqing residents towards developed cities and coastal resort and leisure destinations, their sales strategy cleverly avoided the storm of real estate speculation and the concerns of buyers regarding property tax. Regarding Chongqing's property tax policy, he described his feelings as "unexpected."
Threshold for Property Tax in Chongqing Set at 9941 Yuan
The turnover of high-end residential properties has directly plummeted. It will definitely have an impact on the transactions of high-end housing, an industry insider told NetEase Finance. The telephone lines of Xie Xin Properties, a high-end villa agent in Chongqing, remained unanswered, while another upscale residential area in Chongqing, Vanke Yuefu, refused interviews citing meetings among senior managers.
The property tax in Chongqing mainly targets newly added high-end residences, requiring fees for any purchase of high-end housing exceeding 100 square meters after January 28th. Mr. Xu from the Publicity Department of the Chongqing Finance Bureau informed NetEase Finance that he was one of the participants in formulating this property tax.
The threshold for the property tax in Chongqing in 2011 is set at 9941 yuan per square meter. This means that high-end residential properties priced above 9941 yuan per square meter will fall within the taxable range, and 9941 is twice the average price of properties in Chongqing over the past two years. This figure may fluctuate next year, Mr. Xu explained. However, the various intermediaries in Chongqing have yet to receive this news about the threshold.
As for already purchased detached commercial residences, those exceeding 180 square meters will be included in the taxable range. Detached residences of 180 square meters and high-end residential properties of 100 square meters are considered within the self-use range, hence exempt from tax. However, if the area exceeds this limit, paying taxes will be unavoidable.
Wang Bo, Director of the Market Consulting Department at Chongqing Weilian Real Estate Advisory Co., Ltd., believes that both Chongqing and Shanghai are pioneering the introduction of China's property tax in pilot form, transforming a national tax related to the livelihood of the country into different local policies. This has resulted in differences in the intensity, scope, and effectiveness of regulation, making the controversy surrounding property tax even greater.