News Story of the Week

This might not be the most exciting news story for some of you, but it is BIG news. China is trying out property taxes in Chongqing and Shanghai in their latest effort to cool down the property markets.

If you look at the article you can see that the property taxes are 1. pretty small (less than 1.5%) and 2. confusing as heck. For example, in Shanghai you get to calculate square footage across all properties and then divide by total family members.

Property prices and China’s housing bubble have been a hot topic for the last year or so. In conversations with my coworkers, one of the first questions they ask is how much housing in the US costs. With good reason too, in Nanjing housing prices increased 400% in some downtown areas just over the past 5 years, and that is typical of what has been going on in most Chinese cities. 

In 2009 there was a popular TV show in China that featured a family struggling to save money for a home big enough for all of them. It was forced off the air due to its “sensitive” nature. A friend said that he could relate to the show, since the amount he was able to save each year was less than the cost increase.

So the property tax is big news, as it shows that the gov’t is starting to grasp for new ways to control property speculation, ways it claimed it would NEVER resort to.

6 responses to “News Story of the Week”

  1. […] This might not be the most exciting news story for some of you, but it is BIG news. China is trying out property taxes in Chongqing and Shanghai in their latest effort to cool down the property markets. If you … Continue reading → […]

  2. Scott Budlong says:

    I believe I heard once that China doesn’t allow people to own their land, but rather leases it to people for very long times… Is that true?

    Also, why is the property rising so much? Is it just straight population boom or population and increased economic means?

    • Tom says:

      That is correct Scott, the leases are typically 75 years or so. Sometimes it is 99 years as a special incentive.
      Your second question is a bit tougher. I think that the biggest chunk of the price bubble is speculation. Theres an old story about an investor in the 1920’s who cashed out of the market when his shoe -hine boy was giving stock advice, in China my students in the countryside told me to buy property. Also, since the RMB has been undervalued, property is a better investment than buying foreign stocks.
      Another part is China’s population is moving from the countryside to the city, but I don’t think it would account for the 4-500% increase, especially since most of those people are migrant laborers that aren’t buying property.
      More on this later…its a pretty big topic.

  3. Chopstik says:

    A very big topic indeed. I remember the t.v. show you reference in this post (though I forget the name at the moment). Saw bits and pieces of it and, in talking with various friends, almost all of them could relate to the characters and/or the situation. Needless to say, the situation is pretty grim for those who do not have property at this point. And speculation is a pretty good guess as to why the prices have risen so much. If you thought there was a housing bubble in the US, there is a lot of concern (in some quarters) of a bubble in China right now – which is part of the reason for this move to introduce the property taxes and hopefully cool things down a little.

    Of course, the local governments are often found working in contradiction to the federal government in this case. I remember reading something a while back about how the local governments are running a shell game where one dept in the local government will buy a property from another at one price, then turn around and sell it back to the first six months later at an inflated price. While I’m not an economic genius (far from it), that is certainly in contradiction to what the national government is trying to do. I only hope that the situation is resolved before it blows up in everyone’s faces.

    • Tom says:

      I had a thought this morning in church as I listened to a sermon on paradoxes. Chinese purchases are 75 year leases, but the buildings are only designed to last 25 years (at best). I look at 5 year old apartments and wonder how they could ever hold any value.

  4. […] our conversation we talked about a variety of topics: Manufacturing, GDP growth, High speed rail, the housing boom, China’s environment, and in each topic he brought up that it wasn’t […]

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