Will China’s Tax Policy Throw Property into the Deep Freeze? – Alice Poon

From Asia Sentinel:

China’s leaders appear once again to want to bludgeon their property market into submission. Their 20 January announcement that they would enforce a capital gains tax on property development that would cut developers’ margins to 20 percent shows that their grasp on market mechanisms remains remarkably slippery.

But blunt instruments don’t always work. Besides the question of how developers will react when they can get higher margins on their money elsewhere, there is the question of whether China’s red-hot property market has peaked and if the action could cause more damage than it would cure. The announcement sent property stocks reeling in mid January, with shares descending by 20 percent in Hong Kong, Shenzhen and Shanghai.

The goal seems laudable – making housing more affordable and avoiding a disastrous bubble. But restricting supply through tax policy – in this case a measure that has been around, unused, for thirteen years ” may not be the way to go. [Full Text]

January 30, 2007 10:14 PM
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Categories: Economy