Shanghai Cuts Real Estate Taxes to Boost Housing Market

19 Nov 2024 CW Team

Shanghai announced new tax reductions for real estate transactions, effective December 1, as part of efforts to revive its struggling property market. The city will remove the distinction between "ordinary" and "non-ordinary" housing, which had subjected larger properties to higher taxes.

Key changes include exempting residents from value-added tax (VAT) if they sell a property held for over two years. Additionally, the threshold for levying deed tax has been raised from 90 square meters to 140 square meters. For instance, the deed tax on a 10-million-yuan apartment will drop significantly from 300,000 yuan to 100,000 yuan.

These measures follow the central government's broader initiatives, including interest rate cuts and reduced down-payment requirements, to stabilize the real estate sector. Despite these efforts, resale home prices in Shanghai fell for the 16th straight month in October, down 6.7% year-on-year.

"Shanghai's tax cuts align with national policies to rebuild confidence in the housing market," said Bruce Pang, chief economist at JLL. However, Pang cautioned that reducing transaction costs alone may not ensure long-term recovery without addressing broader economic concerns and stabilizing housing price expectations.

The policy shift sparked significant discussion on Chinese social media, ranking as the second-most-read topic on Weibo. While some welcomed the changes, many expressed skepticism about their immediate impact on affordability and market recovery.

Economists anticipate that other cities may follow Shanghai's lead, introducing similar tax incentives in the coming weeks.

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