In the latest move to cool the steaming property market, Shanghai has imposed a 5.5 percent profit tax on those who sell their homes or apartments within the first year, the Shanghai Tax Bureau said on Sunday.

In a related development, the city announced the expansion of mortgage loan discounts for low-income residents.

Both measures are part of local government action to ensure a supply of affordable housing for all income levels.

"The tax move demonstrates the government's aim to reduce market speculation," said Zhu Huiping, director of the Shanghai Shenyang Property Agency.

In announcing the decision, the bureau said a business tax of 5.0 percent will be levied on the difference between purchase and sale prices for any property not held for more than 12 months. A separate fee of 0.5 percent will be applied as a city construction and education tax.

Prior to the rule change, real estate sellers paid no taxes while buyers handed in 1.5 percent of the property's value in deed and stamp taxes.

The new levy follows other actions taken by the city to try to head off a property bubble. Among the measures put in place last year were tougher rules for mortgages and development loans.

Some analysts are skeptical that the new tax will have much effect.

"With the city's housing prices continuing to rise, this move will not greatly dampen people's enthusiasm to purchase apartments," said Zhu.

The benchmark Shanghai Housing Index, which tracks selling prices and volume, rose 14.6 percent in 2004, the Shanghai Real Estate Index Office reported.

The index soared 27 points in January to 1,347 points, the biggest gain since November 2003, when it jumped 44 points.

Most analysts expect the run up in housing prices to continue this year, although the pace may slow.

"The tax policy will not greatly affect my decision to sell property," said Qian Guofen, an office clerk who owns three investment apartments. "What really counts is whether the city's housing prices have reached a peak. I don't plan to sell my apartments in the near term while prices are rising."

Meanwhile, the city government has revised its mortgage loan subsidies for families whose annual incomes are below 16,683 yuan (US$2,010).

Qualified applicants can receive mortgage interest discounts up to 15 percent of the property's value for their first home purchase. The ceiling on eligible properties was raised from 250,000 yuan to 330,000 yuan and from 3,500 yuan per square meter to 4,500.

Shanghai is also promoting the development of more low-income housing. In 2005, 8 million square meters of budget homes, or those priced below 3,500 yuan per square meter, will be put onto the market, while construction will begin on another 9 million square meters.

(Shanghai Daily March 7, 2005)