By far the most visible manifestation of Beijing’s struggle against a frenzied industry has been Evergrande. China’s largest developer, which built its position largely on indebtedness (the company’s liabilities exceed $300 billion – a little less than Poland’s public debt), has been hovering on the verge of default for several weeks. The company can no longer borrow under the regulations since the end of last year. It is provided by the central authorities. Hence its problems.
The ruling communists know, however, that curbing diseases for developers is only one side of the equation. The second is to reduce the demand for housing. The financial system in China is organized in such a way that it is unprofitable to keep savings in banks. Buying an apartment for Chinese consumers appears to be a safe investment – explains Jacob Jakobowski, an expert from the Center for Oriental Studies. Hence the idea of imposing a tax on the value of real estate known as the Land Registry on the Vistula River.
For now, the tax will be introduced experimentally in select cities and for a period of five years only. The payers will be people with second and subsequent apartments, and possibly high-value properties – so it won’t affect consumers who have one apartment. His Majesty is still under consultation. Since 2011, the Land Registry has been valid in Shanghai and Chongqing. In the first city, 0.4-0.6 percent is paid. From the price of the last transaction, the tax should not reflect the real market value of the apartment.
As reported last week in the Wall Street Journal, the pilot was initially intended to cover up to 30 cities, but was cut significantly due to strong opposition within the Chinese Communist Party itself. The caution in its introduction and the fact that the idea was handled in an atmosphere of secrecy prove, according to Jakubowski, that the new tax is a “political bomb” — at least for some reasons.
The first is the finances of local authorities. Selling or renting land for housing construction has been a major source of income for Chinese local governments for years. According to data from E-house China Research and Development Institute, a company that monitors the Chinese real estate market, such transactions account for up to 40 percent. local budgets. If the land registry reduces the demand for apartments, it will translate into developers’ appetite for new land, and, accordingly, revenue for regional credit unions.
At the same time, the new tax will not close the resulting gap. According to Bloomberg’s calculations, Shanghai last year, thanks to the land registry, earned 19.9 billion yuan (12.3 billion PLN) – just 7 percent. Proceeds from the sale of the land. Income loss is a major concern for local politicians responsible for economic growth in their area, and this is the easiest way to illustrate through investment. However, funds are needed for this, and Beijing is pressuring local governments to reduce their debt.
In addition, there is a broader role for housing in China. The contribution of industry to the country’s economic growth is estimated at 20-30%. annually.
However, entering the land registry also has other consequences. As Jakóbowski explains, perhaps the most politically important fact is the fact that the tax requires the creation of a list of property owners so that their value can be calculated. This did not suit many activists, because apartments were often given as bribes. – It will suddenly appear who owns the number of apartments, and what anti-corruption measures can follow – perhaps not at the central level, but certainly at the local level – says the expert.
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In China, real estate accounts for up to 70 percent. household assets. If the Land Registry drives prices down, all landlords will feel lost – not just those with two or more apartments. – When a man is preparing for the wedding, he must contribute to a new relationship with an apartment – only then will he be considered fully valued. Therefore, the whole family of the groom is often thrown into the apartment – it emphasizes the cultural side of living in the Middle Jakubovsky Kingdom.
Jacob Kapiszewski
27.10.2021
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