China’s housing market has yet to stabilize as authorities have announced a reduction in the deed tax rate for first and second homes nationwide to a record low of 1% in a bid to stimulate the real estate market. However, analysts believe that this tax cut measure may not have a significant impact.
In late September, the Chinese Communist Party’s (CCP) more aggressive real estate support policies have shown limited effectiveness, with the housing market still struggling to find stability.
On November 13, an article hosted by Tang Ya, former associate professor at the Guanghua School of Management at Peking University, on the financial media platform “Xiangshuai’s Financial World” pointed out that while property sales briefly warmed up, downward pressure has resurfaced.
According to the article, data from the Ministry of Housing and Urban-Rural Development’s “National Real Estate Market Monitoring System” showed that in October, the nationwide net signed transaction volume of new commercial housing increased by 0.9% year-on-year, the first positive growth since June 2023.
However, the brief uptick in October did not sustain. As of the first week of November 10, the total sales area of commercial housing in 30 cities, as reported by the National Bureau of Statistics, decreased by 31.42% compared to the previous month.
More significantly, prices of second-hand homes continue to decline, with the October trading volume increase equivalent to “trading volume for price.” The China Index Research Institute reported that the average price of second-hand homes in a hundred cities fell by 0.60% month-on-month, marking a continuous decline for 30 months with a 7.27% year-on-year decrease.
The article highlights that the life-or-death struggle faced by real estate companies remains unresolved, creating immense pressure on the market. In October, the investment of 30 companies in the real estate sector contracted by 25% month-on-month and 74% year-on-year, with a wider decrease of 27% compared to September. Corporate confidence is still extremely low, and cash flow remains tight. State-owned enterprises, central enterprises, and urban investment companies continue to dominate land acquisitions.
On the 13th, the CCP’s Ministry of Finance, State Administration of Taxation, and Ministry of Housing and Urban-Rural Development announced that starting from December 1, individuals purchasing their primary family residence or a second home with an area not exceeding 140 square meters will uniformly pay a 1% deed tax rate nationwide.
In terms of value-added tax, the minimum preemptive rate of land value-added tax in various regions will be uniformly reduced by 0.5%; in cities where the standard for regular and non-regular residential properties has been canceled, individuals selling a home purchased more than 2 years ago (including the 2-year mark) will be exempt from paying value-added tax. The provisions for levying value-added tax on non-regular residential properties sold by individuals in Beijing, Shanghai, Guangzhou, and Shenzhen when held for more than 2 years have been correspondingly suspended.
China political and economic analyst “ChinaFacts” on the social platform X commented: “Tax policies meet expectations. Even though the tax rate for properties over 140 square meters did not drop to 1%, which is lower than expected.
“The symbolic significance of the policy is greater than its actual impact. The symbolism is that the Ministry of Finance is willing to give the real estate sector some relief, but the actual impact is minimal. The stimulus would have worked if it had been implemented when there was a high volume of potential buyers. However, since many have been waiting on the sidelines since September, this stimulus is unlikely to have a major effect. We await further policies.”
Economic blogger and prominent figure on Weibo “PlaySugar” remarked: “Is the difficulty in selling houses solely due to high deed taxes? Once a property loses its value appreciation and preservation functions, aside from necessity, few would invest in it again.”
The well-known Weibo personality “Solitary Hongze v2” added: “Those who have not bought houses may not see the reduced tax rates as a significant advantage. As declining incomes outstrip tax savings, those who bought properties in previous years and paid full deed and value-added taxes are surely disheartened.
“I can’t speak for others, but personally, I would only buy property when it appreciates. If the decision to purchase hinges on the amount saved in taxes, the next step would be considering the rental yield and reevaluating it based on rational value.”
Weibo celebrity and lawyer “Zhuang Zhiming” stated: “The purpose is quite clear: to stimulate home purchases. The reduction of the deed tax from 3% to 1% is indeed beneficial, reducing the home purchase (deed tax) cost by 2%. Yet the question remains, if today the cost is reduced by 2% but property prices drop by 10% in the future, would it still be advantageous?”