Capital Gains Tax Impacts China’s Housing Market

In response to a new rule allowing China’s government to implement a 20% capital gains tax on housing sales, investors who have gone the route of buying and selling homes for profit are rushing to sell their additional homes before the tax comes into effect – however, it’s unclear when the ruling will be effective. The measures, which include a property tax implemented in Shanghai last year, is seen by analysts as an attempt by authorities to counter a housing bubble, and note that the new government regulations will have a marked impact of supply and demand in the home market.

To assist first-time home buyers the government allowed some leeway in down-payment requirements depending on the location and the mortgage lender. With current down-payments being between 25 and 30 percent, this relaxing of restrictions on first-time buyers boosted the housing market, which the new ruling is likely to dampen. The capital gains tax ruling has reportedly been in the pipeline for some time now, but steps are being taken to implement it in the near future.

The wealthy waterfront district of Pudong New Area in Shanghai has experienced an increase of 30% in the number of new homes, and the new home market has been steadily rising for the past 36 weeks. Moreover, unsubsidized housing sales rose 20.7% within a week in Shanghai. Beijing has been experiencing a housing boom as well with around 9,400 homes being sold in the first week of March, representing a 279.5% increase over the same period last year, while pre-owned home sales have risen threefold.

A survey carried out by real-estate website SouFun Holdings Ltd noted that up to 30% of potential home buyers have had to rethink their plans to purchase a home as a direct result of the tax. Conversely, homeowners who had been considering selling, are speeding up their plans to avoid the 20% capital gains tax.