Insiders expect a slowdown in second-hand property transactions across the country after property owners rushed to close deals on their homes before yesterday's deadline and therefore evade a tax increase.

Last Wednesday the State Administration of Taxation announced that a 20 percent individual income tax would be imposed on second-hand house sellers starting August 1. The number of such transactions in Beijing and Shanghai soared prior to the deadline.

On Monday, one day before the policy came into existence, over 500 people visited the local taxation bureau in Beijing's Chaoyang District to trade their homes. This was five times more than usual, said the bureau. 

On the same day in the capital's Haidian, Fengtai and Chongwen districts the number of transactions increased by about 600 percent despite the very heavy rain. "Nobody wants to pay the extra tax," said 54-year-old Chang Chunxia, who was waiting in the Chongwen taxation bureau.

She said her family had decided to buy a flat at Huashi Beili from a friend but they'd not yet completed the transaction. Under the new policy she'd have to pay an extra 20,000 yuan (US$2,500). "It's a large sum," she said. "We hope the transaction can be finished today so the money is saved."

Figures from the Hanyu Property Company in Shanghai showed that the trading volume it handled from Thursday to Monday was equivalent to the total of the other 26 days in July with it doing business involving 160 apartments. 

The Shanghai-based Centaline Property Company said its overall trading volume rose by 30 to 40 percent in the last five days. Trade volume at its Pudong, Hongkou and Luwan branches saw a sharp increase of 50 percent.

Faced with so many transactions the local taxation bureau in Beijing decided that anyone who went to the bureau to register their house sales before yesterday's deadline and completed the deals by the end of the month would be exempted from the tax.

The new policy, which follows a series of central government measures announced earlier this year to cool the overheated real-estate market, is expected to further squeeze speculation.

Figures from the National Bureau of Statistics show that by the end of June more than 121 million square meters of commercial housing had remained unoccupied nationwide because of rising prices-- up 17.2 percent over the same period last year.

Lin Zengjie, land management professor at Renmin University, described speculation as "a major contributor to the rising price," Xinhua reported. "The collection of individual income tax and transaction fees may increase the speculation cost and thus is of benefit to the development of a healthy market," he's quoted as saying.

The government started to collect a 5.5 percent transaction tax on house sales within five years of purchase this June in another move to fight back against speculators. 

Xin Xin, a broker with the 5i5j Property Company in Beijing, told China Daily that the latter policy wasn't as strict as the earlier one as it contained a number of favorable items.

The base of the individual income tax is transaction price minus the original price. Reasonable costs including home improvements and facility maintenance expenditure as well as mortgage interest would be excluded from the taxable amount. But the base of the transaction fee is the total transaction price. Xin also warned of the "possibility that sellers shift the extra tax to buyers which may increase the price of second-hand houses."

(China Daily August 2, 2006)