What exactly is a real estate tax?

A real estate tax should be a tax arrangement based on real estate transactions and holdings.

At present, China's real estate tax system includes:

Land acquisition phase: deed tax, urban land use tax, and cultivated land occupation tax;

Real estate transaction phase: land value-added tax, corporate income tax, personal income tax, urban construction and maintenance tax, etc.;

Real estate holding phase: [for rental use] value-added tax, stamp duty, [for self-use] property tax;

For the time being, houses are only taxed at the time of transaction, but no tax is levied during the holding period of the property.

In the future, what kind of houses will be affected by taxation?It is well-known that the property tax has been proposed a few years ago, but it has not been implemented, not even in the form of a draft, which is indicative of the significant difficulties in enacting property tax legislation. However, this year, there has been a basic timeline for the property tax, suggesting that it is on the verge of being incorporated into the relevant legislative process.

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1. The valuation of property value is primarily based on assessments by the housing department, with the general assessed value being slightly lower than the market price.

2. People with only one residence are essentially unaffected. Taking Shanghai and Chongqing as examples, each person has a tax exemption of 40-50 square meters. Therefore, for those with only one property, the property tax has minimal impact.

3. With a tax exemption area, there will inevitably be a progressive tax rate. According to the property tax rates in the United States and the global main markets, which are roughly between 0.5% and 1%, those with two properties, one for self-occupation and one for rent, will likely not see an increased tax rate. This ensures an effective supply in the rental market. However, if you are a holder of multiple properties, the tax rate may be cumulative, increasing the holding costs of the additional properties, but it can be imagined that the increase will not be substantial, as it would be detrimental to social stability.

4. The issue of land transfer fees will definitely be considered, with property tax deductions based on the actual years to avoid double taxation. This will require specific measures and methods to be implemented.

5. The collection of property tax in Shanghai and Chongqing is not done by visiting households, as the cost of tax collection would be too high. Generally, the increase in property tax is levied during property transactions, so it is also very likely to be passed on to the buyer, with the seller actually receiving the net amount.

Based on the above logic, the value of a house lies not only in the appreciation of the property but also in its potential for rental. In the future, houses will not experience a sharp increase in value. For large apartments in suburban areas, third and fourth-tier cities with net population outflows, and some investment-type tourism properties, the introduction of property tax may accelerate depreciation and decline.

With the implementation of the property tax, investors' asset structures will undergo significant changes. Perhaps the proportion of real estate investments will begin to gradually decrease, while the proportion of financial asset investments will gradually increase. Compared to developed countries, financial assets may become a standard allocation for families in the future.

If you own the aforementioned types of properties, the holding costs will increase in the later stages, potentially becoming a negative asset. However, if you hold properties in core locations that can offset the increased holding costs with added value such as rent, they remain an ideal investment.