Property tax reform plan welcomed

Choice of cities

The Xinhua report said the State Council would determine the regions, or areas, where the property tax is trialed. It will also draw up details of the pilot plan, leaving local governments in the areas that are selected to work out specific implementation measures.

Experts said it is not yet known which cities will pilot the tax. However, those more likely to be chosen are locations where the central government has greater regulatory oversight, such as Beijing, Shanghai, Chongqing and Tianjin. Cities with high-priced housing markets and weak affordability, including Shenzhen, Guangdong province, and Hangzhou, capital of Zhejiang province, are also likely to be selected, along with locations focusing on pilot plans, including Hainan province.

Markets where revenue from land sales has started to fall may also be considered, the experts said.

Jia Kang, chief economist of the China Academy of New Supply-side Economics, said a few cities are in urgent need of a real estate tax.

"For example, Shenzhen is in the process of building a demonstration pilot zone for socialism with Chinese characteristics. The city should seize the opportunity to pilot the property tax to replace its existing administrative measures with economic instruments," Jia said.

"Similarly, Hainan free trade port in South China, destined to be the world's largest duty-free market, is in need of an adequate market-driven property sector to match its future international status. So is the eastern province of Zhejiang, where the Communist Party of China Central Committee and the State Council are setting up a demonstration zone for achieving common prosperity."

Some experts suggested that cities piloting property tax reform may relax real estate purchasing restrictions.

Jia said, "Once there is an economic solution, extreme restrictions imposed on property purchasing may gradually be phased out."

But Macdonald said it was more likely that a property tax would be introduced, but no other measures taken. If the tax had a significant negative impact on the market, then other, more short-term policy measures, such as house purchasing restrictions, may be removed. If the impact was minimal, other policy measures might remain in place for a while longer, he said.

Xie, from CBRE, said, "From what we can see from previous pilot plans in Shanghai and Chongqing, and the latest statement by the NPC Standing Committee on promoting more provinces or cities to introduce such plans, we believe implementation of a property tax in China will allow local flexibility based on housing market conditions."