Property Tax Levied from the Third Apartment?
Hu Cunzhi, deputy minister of the Ministry of Land and Resources, when attending “2013 China Development Forum” said that “now the successful policies of price limit and house purchase quota should be timely summarized and transferred into carrying out the policies with economic means. At the same time, government may try to levy the regulation tax from the third apartment of household. After he made such remarks, the discussion of the public on property tax has been triggered once again.
In recent years, the housing prices have soared, although the government has taken various regulatory policies, the result is not obvious. Therefore experts say that is due to the very low holding cost of China’s housing, thus leading to a large amount of housing purchase behaviors of speculation and investments. This time the expression of Hu Cunzhi’s opinions is just based on such thinking.
Whether the public or experts all seem to think that the release of property taxes may restrain the housing prices. But viewing from the practices of many countries, it seems that this premise does not exist. Because the collection of property taxes has increased the holding cost of house owners, so in a short time, it may stabilize housing prices; but in the long run, it can hardly play the role. Many countries that have property taxes all have gone through the time of soaring housing prices: one example is the U.S. before the subprime mortgage crisis. For example in Singapore, since 2009, the housing prices have risen markedly. The private real estate and the housing prices of the public housing and development board flats in Singapore approximately doubled from 2005 to 2012. Though the property taxes of Singapore may be the highest in all countries - 4% is adopted for owner-occupied housing, and 10% is collected for housing of other uses.
In fact, many countries levy property taxes not for increasing the holding costs or restraining the increase of property prices, but for providing a stable tax source for local governments. We know that in the composition of the housing prices, the location is a very important factor. The ups and downs of housing prices display the positive correlation with the surrounding public services, and the so-called “school district housing” is just because of this reason. These owners of housing benefit from the public services provided by local government and of course, they are asked to pay expenses for those benefits. Such is the basic logic of the generation of property taxes.
But in China, though there is the so-called school district housing, in fact in China the current pubic services haven’t been related to property. We can find that in many districts where the property value is very high don’t have good schools and good hospitals -for example, in recent years, the new urban districts everywhere are the major payers of land-transferring fees, but in these districts, there are rarely good public goods that can be seen: whether hospitals or schools, they all fall behind old urban areas. In this sense, in current China, the basic premise for collecting property taxes does not exist.
And considering from the technology, big problems also exist in starting to collect property taxes from the third apartment. Why not start from the first? People say that if property taxes are collected for each house, for those ordinary salariats who only have one apartment, it is a heavy burden. Starting to collect the taxes from the third is for considering the benefits of the wide salariats. But the problem is, is such a tax exemption standard really considered for salariats? Not necessarily.
For the property tax, the most efficient and fair method is that the taxes are calculated according to the house value. It’s just like that the individual income tax takes the monthly salary of 3,500 yuan as the tax exemption threshold, and does not take how many jobs a taxpayer has as the calculation unit. The reason is that taking the number of housing sets as the unit ignores the value of house: a billionaire may not need to pay the property tax for a set of a luxury mansion that is worth of more than one hundred million yuan, but a middle class person may have to bear property taxes for three sets of houses with a total price of three million yuan. There are obviously some problems for this practice. At the same time, taking the number of housing sets as the tax collection unit, it may be very likely that various ethical risks are triggered, thus will a person with many sets of housing divorce in order to achieve the aim of tax avoidance?
Also just because of the above reason, almost all countries in the world that collect property taxes take the property value as the calculation unit for tax collection, even the exemption of taxes also takes property values or the personal income of a house owner as the exemption standard and the number of the sets of housing is not taken into consideration. Taking the property taxes of Singapore as an example, it is a common phenomenon of “collecting more taxes from the rich and collecting fewer taxes from ordinary people”, and the taxes are adjusted according to the national economic policies in different periods. After the tax system reform in 2011, all those people whose annual incomes are less than 6,000 Singapore dollars (one Singapore dollar equals to about 5.1 yuan RMB) are exempted from paying property taxes.
If the above argument comes into existence, it means that currently in China, not only the theoretical basis for collecting property taxes for the third set of housing does not exist, at the same time, but also it is infeasible for collecting property taxes for the third set of housing from the technological angle. But, why do the government and the public are all so enthusiastic about discussing the collection of property taxes for multiple sets of housing? In other words, if an individual has bought many sets of houses, what maladies doest he bring about for the society?
Many people may say that because the rich have purchased many sets of housing, the housing prices have risen, and the mid and low income classes are difficult to bear the prices, thus influencing the urbanization of China -at this stage, annually there are nearly 10 million people pouring into cities of China, the rapidly rising housing prices bring about huge pressures for this part of group, and the housing-price-to-income ratio that greatly exceeds the world average level is a clear evidence. Though many people cannot afford to buy houses, but it does not mean that this part of group does not have dwellings to live in. Besides, from the empirical point of view, China’s large-scale cross region population flow (that is urbanization) actually began in 1998 which was exactly the year of China’s urban housing system reforms, and also the year when the housing prices have gradually risen.
Why is the rising of housing prices favorable of urbanization? One very important reason is that commercialization of housing inspires real estate investor to build houses - in the time of planned economy, the housing of urban residents was a kind of welfare, and the welfare also means that more demands will bring more burdens for the government. Just because of this, since 1949, there have been not many improvements for the housing of Chinese urban residents.
With more and more third sets of houses, many mid and low income class people may also rent their own houses in cities, and the prices are not so high. If there are no multiple sets of houses owned by so many people, where should these residents who enter cities from the countryside live? Due to the soaring housing prices, some people may realize the increase in value through holding house properties, and other people may benefit from the multiple sets of houses that are held by the former -the house price-to-rent ratio in China may be the highest one in the world. In this sense, the fact that some part of group holds multiple sets of housing will not influence the living problem of the mid and low income class. Then, to whom is it harmful? The biggest harm may be that the fast rising of house property may accumulate a financial risk. But this risk can be completely solved by the banks that discriminate qualified house holders. If the banks don’t provide lending, then can the risk be relieved?
In this sense, the scheme of collecting property taxes from residents who hold many sets of housing is more like a political show —— it caters to the voice of the public demanding to lower housing prices, but it does not attempt to solve the various problems of the excessively high housing prices, not even just a small step.
Originally published on China Times | 2013-3-27
