Shares of Chinese property developers plunged yesterday in
reaction to a government announcement that it would begin
collecting land appreciation tax from next month.
Shares of Vanke, the country's largest property developer,
dropped 10 percent to 17.28 yuan (US$2.21); and Poly Real Estate,
the nation's biggest State-owned developer, slid nearly 10 percent
to 52.03 yuan (US$6.67).
The Shanghai Stock Exchange Composite Index closed at 2,778.90
points, down 42.12 points.
On the Hong Kong stock market, shares in Shanghai-based Shui On
Land Ltd and China Overseas Land both slid 5.8 percent, Shimao
Property lost 5 percent, and Greentown China dropped 7.14
percent.
"The tax changes will narrow the profit margins of developers,"
said Charles Zhang, an analyst from Colliers International Property
Services (Shanghai) Co Ltd.
In a bid to prevent property developers profiteering from
hoarded land, the government will switch to using market valuations
of land to determine capital gains taxes for building projects. The
tax rate ranges from 30 to 60 percent.
The State Administration of Taxation (SAT) issued a notice on
its website on Tuesday, telling developers to settle their land
appreciation tax starting from February 1.
The tax was first introduced in 1993, but it has never been
officially collected; and is seen as yet another measure to control
the overheated property market.
Booming housing prices have made many developers hoard large
pieces of land and drag their feet in project development, in the
hope of making larger profits from appreciation of land prices.
The practice, in turn, has led to housing prices skyrocketing in
major cities.
According to a report released recently by the website Sina.com
and New Real Estate Magazine, real estate prices in Beijing
have increased by 42 percent over the past three years. The average
housing prices in 70 major Chinese cities climbed 5.2 percent in
November year on year.
"The tax signals the government's resolve to regulate the
property market," said Zhang Qi, a researcher with the Institute of
Economic and Resources Management affiliated to Beijing Norman
University.
(China Daily January 18, 2007)