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Tax only raises cost of housing

Updated: 2007-07-20 07:22




The burden of the new tax on sales of previously owned houses will only
be shifted to buyers while continuing to push up housing prices, says an
article in Guangzhou Daily. The following is an excerpt:

Starting from the middle of this month, Shanghai began to impose a land
appreciation tax on the trade of previously owned houses that are less
than five years.

The move represents the Shanghai municipal government's latest attempt to
cool down the red-hot real estate market. It follows last year's
collection of a business tax and individual income tax. Combined, these
taxes account for nearly 10 percent of the cost of a secondhand home in
Shanghai.

The government's intentions are clear enough: It is looking to rein in
speculative activities in the property market by raising the costs of
making property deals.

The trouble is that housing prices will continue to go up since demand
exceeds supply. Further taxing sales of previously owned houses will do
little to cool the market because the extra costs will only be shifted to
buyers.

According to reports, the demand to supply ratio in Shanghai is 0.7:1,
which puts the seller in a relatively strong negotiating position. The
sellers of previously owned houses in Shanghai usually shift the burden
of higher taxes directly to buyers.

In fact, the failure of this attempt at macro control is exemplary of the
country's disorderly property market. The property market is now staging
a drama: "The more controls, the higher housing prices."

We should not only be thinking about tax policy, but also about macro
controlling measures in general. Though the government's intentions are
good, the direct result of the previous two rounds of new macro control
measures has been a decrease in the overall supply of housing, which has
exacerbated the gap between supply and demand. Housing prices will
definitely rise.


















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