China may impose property taxes soon

CHINA FINANCIAL - Report 15 May 2018 by Michael Pettis

Special points to highlight in this issue:
• There is a new round of speculation about Beijing’s intentions concerning property taxes. Some analysts suggest that we may see taxes implemented as soon as 2019, and a first draft of a tax bill released later this year.
• The real estate market creates significant distortions in the Chinese economy, among the three worst of which are prices in bubble territory, extremely low rental yields, and extremely high vacancy levels. The implementation of property taxes, if they are high enough, would presumably help resolve all three. It should also help stabilize prices in the real estate market, something Beijing has been trying to do – unsuccessfully – for over a decade.
• But the imposing of property taxes, to the extent that they are meaningful, could also create significant uncertainty in the economy, undermine credibility in the banking sector, and anger powerful social groups. For this reason we should not expect Beijing to move quickly or dramatically.
• Many believe that property taxes may be an important addition to the toolkit Beijing can use in its attempt to stabilize the real estate market. But stabilizing China’s property markets may not be a question of having and using the right tools. It may well be that the very structure of the real estate market, specifically the dominance of speculative buying, makes stability an impossible goal in the short term.

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