Business Tianjin Magazine

Real estate offices have been jammed by people anxious to sell their homes ahead of the reintroduction of a 20 percent capital gains tax on profits from property sales.

On March 1, the State Council, China's Cabinet, posted a statement on the government's official website specifying an array of new measures aimed at reining in property speculation.

They included tough enforcement of the capital gains tax and increased down payments and mortgage rates on second home purchases.

"The new measures will have a significant impact on both demand and supply in the existing home market," said Lina Wong, managing director of East and Southwest China operations and China Investment Services at Colliers International.

The latest crackdown comes after home prices began to show renewed buoyancy despite desultory attempts by the government to prick the property bubble in the past two years.

There was no timetable for implementation of the capital gains tax, which has technically been on the books for almost 20 years but never enforced. It is expected to replace the 1 percent to 2 percent transaction tax now levied on the price of a house.

The State Council's determination to give the law new teeth sent a shudder through the market. Most buyers and sellers didn't wait to see the fine print on when or how the tax will be implemented.

"The latest announcement by the central government was a major stimulant fuelling the recovery of the local housing market, reviving the market suddenly from the doldrums of the Spring Festival period," said Zhong Yuming, a branch manager at Shanghai Centaline Property Consultants Ltd, operator of the city's largest estate chain in terms of transaction value.

"The majority of our customers were people seeking to upgrade to bigger homes," he said. "It takes two to three days to find a buyer now because both sides crave a fast deal."

Zhong's office in the Sanlin area of Pudong New Area witnessed a 50 percent jump in people walking through the door last week, while the number of new homes put on the market rose by 30 percent.

Prior to the actual implementation of the new measures, the supply of homes is expected to continue rising as sellers rush to beat the higher costs. On the demand side, buyers want to sign on the dotted line before sellers try to pass the additional costs on to them.

In the new home market, brisk sales of mid- to low-end properties in the seven-day period ended Sunday rose to a 36-week high.

Excluding government-subsidized affordable housing, sales rose 20.7 percent from a week earlier to 312,000 square meters in Shanghai last week, according to Shanghai Deovolente Realty Co.

For the first 10 days of March, 412,000 square meters of new residential property were sold across the city, a year-on-year surge of 78.4 percent, Century 21 China Real Estate said.

"The latest announcement by the central government to implement a 20-percent capital gains tax on existing home transactions has had an immediate impact on the local market," said Lu Qilin, a Deovolente researcher. "More people rushed to buy existing properties amid fears of higher prices ahead."

Despite the "panic" selling and buying, some analysts are voicing doubts about the effectiveness of the government's latest attempts to damp property speculation.

Difficult to implement Li Daokui, an economist at Tsinghua University, said earlier this month that the new tax may be difficult to implement.

"In the long term, a capital gains tax should be enforced in the country," he said. "But in the near term, it's more practical to impose a fixed-rate of 1 percent or 2 percent on property sales, based on the price of a home. Calculating capital gain is more difficult."

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