China Housing & Land May Actually Benefit from New Property Taxes

In a move to curb rampant speculation in the property market, a consensus emerged on Monday that the Chinese authorities will likely introduce property taxes starting in 2008, beginning with commercial properties and then extending to all real estate owners. Pilot schemes are already in place in ten provinces and are expected to be rolled out to all.

While this is clearly designed to cool the red hot real estate market, the underlying impulse seems to stem from a socialist backlash in the face of unbridled capitalism. The Chairman of the China Real Estate Association had this to say: "If people want to live in big houses, they will need to pay taxes to make compensation. It demonstrates social justice."

This move follows closely the recent tightening on credit lending, and already, there are signs of a meltdown in certain cities. With this one-two punch, everyone will be affected, but none more so than property stocks. While China is still expected to grow by more than 10% in 2008, the uptrend in real estate prices will moderate, at least in the bigger metropolitan areas. The near term beneficiary may actually be property developers in second tier cities, and if so, China Housing & Land (CHLN.OB), which operates out of Xi'an, should continue to present an interesting play.

Comments

[kkin365]

I am unclear whether there are property taxes in China (we own a condo in Shanghai since 1991). As to "socialistic backlash, etc", the language used by the poster is unbecoming. I got the impression that, in USA, people living in large houses pay higher taxes. So, what is new? kkin365