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China cuts property taxes to boost ailing market

By Hu Yuanyuan (chinadaily.com.cn)
Updated: 2008-12-17 20:57

An estate broker introduces apartments for sales to a potential home buyer at a housing exhibition in Huangshan City, central China's Anhui Province, October 4, 2008. [Xinhua]

China's government launched a slew of measures Wednesday to revitalize the sluggish property market, including cuts in business taxes for real estate sales and loosened mortgage policies for second-home buyers.

Special coverage: Housing in China Related readings:  Second-home buyers get mortgage help  10b yuan subsidy for affordable housing  Govt pondering tax cuts to heal property wounds  Measures proposed to help property firms  Second-home loan restrictions may soon be lifted

The State Council, or cabinet, said a sales tax on properties sold will be waived two years after purchase, compared with the previous term of five years. The tax will also be levied based on the profit from the sale instead of the sale price, according to the statement.

"This move, which helps to ease buyer's economic burden, is expected to boost market vibrancy and may drag down the price of new residential buildings," said Qin Xiaomei, research chief at CB Richard Ellis's Beijing branch.

"However, it could also be a double-edged sword, partly encouraging investment-oriented purchase," she added.

The floor area of residential properties sold in the first 11 months of the year fell 18.8 percent from a year earlier, while real estate investment growth slowed to 22.7 percent in January to November, down from 24.6 percent in the first 10 months.

Dropping transactions are squeezing an economy already hurt by the global turmoil, as the property sector is one of the biggest drivers of China's domestic expansion, contributing a quarter of fixed-asset investment and employing 77 million people.

Therefore, experts say reviving the property sector is vital to the government's efforts to counter the current downturn, which has worsened in the past month, with factory output falling to the slowest pace on record.

"The latest package will definitely help to boost market confidence, but we should not expect an instant rebound since the detailed regulations are still in the pipeline," said Gu Wei, spokesman of Longfor Property.

"Furthermore, it is not easy to make such a big move, showing the government's determination to reactivate the ailing property market," he added.

The State Council said it will allow people to buy second homes on the same preferential terms normally reserved for those buying their first homes, such as lower down payment requirements and interest rates, so long as the floor space per person is lower than the local average.

"This long-anticipated relaxation really makes us excited and could help speed up the recovery of the market," said a sales manger of Beijng Capital Land.

However, Zheng Fei, a 30-year-old company executive, said he will still take a wait-and-see attitude, betting the property price will still fall and the government may offer more favorable policies afterward.

The government also said it would support developers' "reasonable" financing needs, and would increase credit help for construction especially of low-priced and small units, vowing to provide housing for 9.9 million low-income families in the next three years.

The People's Bank of China, the central bank, said Wednesday that developers building low-rent housing could enjoy a 10 percent discount on lending rates, effective from January.

And the National Development and Reform Commission Wednesday also announced a 10 billion yuan subsidy on affordable housing.