Shanghai has introduced tax reductions on real estate transactions, including the removal of distinctions between property types for tax purposes and exemptions from value-added tax (VAT) for properties held for at least two years. The measures aim to revitalize its struggling property market amid nationwide efforts to boost demand and ease developers' financial pressures. Despite slight gains in new home prices, resale prices have continued to fall. While these changes have sparked widespread discussion on social media, many remain skeptical about their impact. Experts, including JLL's Bruce Pang, argue that sustainable recovery requires addressing economic growth expectations and housing market stability.
Shanghai recently announced that it will lower certain taxes on real estate transactions starting December 1, according to state media. The initiative aims to boost the property market in China's second-largest city. This move aligns with China's broader efforts to revitalize its struggling property sector by stimulating demand and alleviating financial pressures on developers. Last week, the finance ministry introduced tax incentives for home and land transactions as part of these measures.
Last week, an index monitoring China's real estate stocks and another tracking Hong Kong-listed mainland property developers both saw gains. Shanghai announced plans to remove the distinction between "ordinary" and "non-ordinary" housing for value-added and personal income tax purposes on property sales. Previously, "non-ordinary" housing-defined as properties larger than 144 square meters (1,550 square feet)-was subject to higher taxes.
According to state media, residents will be exempt from value-added tax (VAT) if they purchase a property and hold it for at least two years before selling. Shanghai has also increased the threshold for deed tax eligibility, applying it to properties larger than 140 square meters, up from the previous 90 square meters.
For example, purchasing a 10 million yuan ($1.38 million) apartment will now result in a minimum deed tax payment of 100,000 yuan, compared to the previous maximum of 300,000 yuan, as noted by Yan Yuejin, an analyst at the E-House China Development Institution. Shanghai authorities have intensified efforts to bolster the real estate market this year, following the central government's introduction of supportive measures such as interest rate cuts and reduced down-payment requirements. Despite these actions, demand has remained weak.
In October, resale home prices in Shanghai dropped for the 16th consecutive month, declining 6.7% year-on-year. However, official data released on Friday showed a slight month-on-month increase in new home prices. Shanghai's latest measures build on these national policies, aiming to restore confidence and revive sentiment in the housing market was said by Bruce Pang, chief economist at JLL.
We expect more cities to introduce similar incentives in the coming weeks as said by Bruce Pang. Shanghai's relaxed tax policies became the second most-read topic on Chinese social media platform Weibo, attracting over 800,000 views. However, many Weibo users expressed disappointment with the changes. One commenter remarked that (Shanghai's property prices) won't drop enough for an average worker to afford them ,while another noted that even with more stimulus, it will be hard for the property market to recover in the short term.
Bruce Pang from JLL stated that reducing transaction costs alone is unlikely to provide a lasting boost to the housing market. To revitalise the property sector, policymakers need to focus on improving residents' confidence in economic and income growth while providing a more stable outlook for housing prices.
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