Housing pains
Global Times | 2013-3-17 19:38:01
By Zhang Yiqian
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Authorities insist controversial new measures will curb soaring property prices. Photo: CFP
Authorities insist controversial new measures will curb soaring property prices. Photo: CFP



Beijing has seen a surge of secondhand house sales recently in the wake of a new housing policy which imposes higher income tax on home sellers.

The policy, released as a package by the State Council on March 1 in an effort to control housing prices, orders that all home owners be levied a 20-percent tax on capital gains. Prior to the new rules, income tax was 1 percent to 2 percent of the sale price.

According to a March 11 National Business Daily report, data on the website of the Beijing Municipal Commission of Housing and Urban-Rural Development shows that a week after the policy package was released, the number of contracts signed for second-hand housing came to 9,400, a 140.5 percent increase from the week before, and a 279.5 percent increase compared to a month ago.

"The expectation that down payments and loan rates would keep rising in addition to the 20 percent income tax rate triggered panic among home buyers," the paper quotes Hu Jinghui, vice president of www.bacic5i5j.com, a leading property brokerage firm, as saying.

People who have or will sign contracts for secondhand houses are hoping to quickly transfer their houses before the policy takes effect, causing a sudden rise in recent contracts signed.

Even though authorities state this policy will lower housing prices, home buyers and real estate market analysts are not as optimistic, saying such a policy can only mean higher prices for buyers, as it's still a seller's market.

Homebuyer reactions

For many homebuyers who haven't had the time to purchase housing yet, they say there is no way they can afford houses with the added 20 percent tax.

Li Wei, a 31-year-old salesperson who lives in Fangshan district, said it is getting harder for her to afford a house in Beijing. Being single, she wanted to buy a small apartment for herself for under 1.5 million yuan ($241,350); anything above that price is beyond her budget.

Just as she had her mind set on buying a house, the policy came along. Twenty percent of income tax would mean another 300,000 yuan out of her pocket, ending her thoughts of getting a house.

Even though the policy stated the tax will come from the seller's side, in a market where housing is tight and in high demand, the burden will inevitably fall on the buyer.

"We reached out to some housing agencies, and the information we received is that no matter what the policy states, the buyer will pay for the tax," said Lily Zhang, a 27-year-old who's getting married in June.

For people with no plan to purchase property, such as 26-year-old technician Wu Yufan, the policy may force him to leave Beijing. Wu had planned on getting married this July and looking into houses in August with a plan to settle in Beijing.

However, since the new housing policy was released this March, he has been thinking about moving back to his hometown of Changzhou, Jiangsu Province. Wu had only been working for about two years and says he can't afford housing in Beijing.

"It's a heavy burden, which means I might have no choice but to leave Beijing," he said.

His savings, along with what he borrowed from family and friends, loans and accumulation funds, came to almost 500,000 yuan, just enough to put a down payment on a house.

"But the policy means a 2-million-yuan house would require 400,000 more yuan, meaning I'd have to hand in another down payment.  It's impossible for me," he said.

Policy may not work

Despite the negative reaction, the government insists the policy will bring down housing prices. According to a March 14 report in the First Financial Daily, Jiang Weixin, head of the commission, said the policy will not be postponed, despite requests to do so by the public.

He also stated the effects will become clear, and the situation of rising prices for secondhand house transactions will ease. However, this viewpoint has been questioned by some.

"If the goal of the policy is to suppress housing prices, then this policy won't work. It might even have the opposite effect," said Tao Yongyi, an independent economist.

In Beijing, about 200,000 couples got married in 2012, and the newly built houses amounted to 100,000 in total, Tao said. For most families, buying a house is a basic need. Demand that cannot be satisfied by firsthand housing will naturally fall on secondhand housing.

In Beijing, many home buyers have bought up several apartments. Now the policy has come out, it's possible they won't sell these extra apartments; but rather rent them out, forcing many potential homebuyers to buy new houses, thus driving up the price.

Furthermore, the tax will fall on the shoulders of the buyers.

"In a market dominated by sellers, especially in a metropolis like Beijing, or in good neighborhoods, the seller will probably let buyers take full responsibility in paying tax," Tao said. "Whether you like it or not, the price is fixed. If you don't buy it, someone else surely will."

How to control prices

The important thing is not to tax the seller, which will increase costs and raise housing prices, but rather to tax real estate ownership, said Hui Jianqiang, head of research at the Shanghai-based E-house China Research and Development Institute.

"For example, everyone gets 60 square meters of untaxed housing space, and for a family, that equals 180 square meters. So if the government levies tax on any extra space, people with many apartments will not be able to afford having them and can release the apartments on the secondhand housing market," he said.

Tao agreed, suggesting that if a tax is levied on a third apartment, then it might free some houses into the market.

"If you tax the first or second apartment, that's not reasonable. Right now, much of the middle-class has two apartments. "But if you start taxing the third, then you are targeting the people who don't necessarily need these houses," he said.

Another suggestion Hui made is to increase housing supply, which solves the issue of shortage.

But house-building can take a long time, and for people like Wu, the situation needs to be resolved soon.

"I'm waiting to see if there are any policy changes," he said. But at the same time, he's looking for a job in a smaller city, one where he will be able to afford a house and live more comfortably.


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Posted in: Metro Beijing





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