On 26 January, the Office of the State Council issued the Further Improving Regulatory Measures for the Real Estate Market Notice (Guo Ban Fa  No. 1), which contained measures known as the “eight rules”. This was followed, the next day, by the publication by the Ministry of Finance and the State Administration of Taxation of the Revising Business Tax Policy for the Transfer of Individual Housing Notice (Cai Shui  No.12). These two notices represent the third round of regulatory measures taken by the State Council to cool the property market, following the introduction of earlier measures in April and September 2010. Coupled with this is the announcement of a pilot scheme for the levy of a property tax on individual housing in Chongqing and Shanghai, suggesting that the long-awaited property tax is finally becoming a reality.
The eight rules
Increase the responsibilities of local governments. Local governments will be required to set a reasonable target to control the prices of new homes in their areas in 2011, and publish it in the first quarter of the year.
Step up the construction of subsidized housing. More subsidized housing projects will be carried out in different localities by various means such as new construction, reconstruction, purchase and long-term lease. Efforts will be stepped up to increase the supply of public-sector rented housing.
Revise and improve business tax policy on the transfer of individual housing, and strengthen the levy and administration of taxes. Business tax will be levied in full on revenue from the resale of individual housing within five years of purchase; extra attention will be paid to the collection of land value-added tax on, and inspection of, property development projects which are priced significantly above housing price levels in the surrounding areas; and the techniques used in the appraisal of real estate prices will be improved to enhance the levy and administration of taxes on second-hand housing transactions.
Strengthen differentiated housing credit policy. The required down payment for a family to purchase a second home must not be less than 60% of the amount of a loan at an interest rate of not less than 1.1 times the benchmark interest rate.
Strengthen the management of the supply of land for residential purposes. The supply of land for subsidized housing must be set out discretely in an annual plan for land for new construction projects. Efforts will be stepped up to promote the supply of land for ordinary commercial housing at low and medium price levels by means of “limitations on housing prices and the level of bids for land”. Work units or individuals who bid for land must show proof of their sources of funding and provide relevant supporting documents; for projects in which the developer has paid less than 25% of the total investment (excluding land prices) up front, neither the land nor the land development project under a contract may be transferred to any other party.
Guide housing demand in a reasonable manner. Stringent measures will be formulated and enforced to restrict home purchases in municipalities directly under the central government, cities with a separate development plan, provincial capitals and cities where housing prices are too high and rising too fast. For example, if a household with permanent residence in a locality already has one housing unit or if a household with registered permanent residence outside a locality can provide supporting documents relating to tax payments or social insurance contributions for a certain number of years in that locality, they will, in principle, be allowed to buy one housing unit (including new commodity housing and second-hand housing).
Implement an accountability mechanism. Relevant provincial (regional and municipal) people’s governments will be required to report to the State Council on any failure promptly to identify and publish targets to control the prices of new housing in their areas for the year, any rise in new housing prices which exceeds those targets, or any failure to attain the objectives set for subsidized housing projects. The Ministry of Supervision, Ministry of Housing and Urban-rural Development and other departments must hold relevant responsible persons accountable.
Take more account of public opinion. The news media will be required to increase publicity to guide residents in spending in a rational manner in line with the actual condition of the country.
Pilot scheme for property tax
Those subject to the levy. The property tax in Chongqing will be levied on privately owned detached houses (newly purchased and/or already purchased), newly purchased individually owned luxury housing (priced at two or more times the average price in the locality), and second purchases (or more) of ordinary housing by individuals without registered permanent residence, a business or a job in Chongqing. In Shanghai, property tax will be imposed only on “new” housing, specifically on second (or more than second) home purchases by households in Shanghai from the effective date of the pilot scheme, and on new housing purchases in Shanghai by non-Shanghai households.
Basis for calculation of taxes. Property transaction prices are to be used as the basis for the calculation of taxes in Chongqing and Shanghai. In Shanghai, taxes are calculated on the basis of 70% of the property transaction price, on a temporary basis. When conditions allow, the full value of a property will be used as the basis for the calculation of taxes in Chongqing and Shanghai.
Applicable tax rate. The property tax rate is to be relatively complex in Chongqing. It is divided into bands of 0.5%, 1% and 1.2%. The property tax rate in Shanghai is to be 0.6%. The tax rate is to be reduced to 0.4% on a case-by-case basis if the market price of every square metre is twice or less than twice the average sale price of new commodity housing in Shanghai in the previous year.
Management of tax collection. It is stipulated both in Chongqing and Shanghai that the property tax will be collected from the month after acquiring taxable property rights, payable on an annual basis. If is the property is owned for less than a year, the tax will be calculated on a monthly basis.
The scenarios and requirements for property tax relief are also specified in the pilot schemes for the two places.
Business Law Digest is compiled with the assistance of Haiwen & Partners. The authors can be emailed at email@example.com. Readers should not act on this information without seeking professional legal advice.