China should advance legislation on a proposed property tax and hold the line on speculative purchases, a state think tank said, underlining Beijing’s resolve to tame the once unruly property market despite ongoing upheaval in the sector.
Last month, the top decision-making body of the Chinese parliament said it would roll out a pilot real estate tax in some regions.
A property tax could deter speculators and cool surging home prices that have created an affordability crisis in recent years. More broadly, such a tax on home owners is seen by analysts and investors as presenting a profound change to China‘s real estate policies.
China must do a good job with the pilot projects, Ma Jiantang, head of the Communist Party leadership at the State Council’s Development Research Centre (DRC), wrote in state media on Wednesday.
Financial Strain
A tax would raise the cost of holding property, potentially slowing the rate of purchases and curbing the cash-flow of real estate developers.
Many indebted Chinese developers including China Evergrande Group have come under huge financial strain since Beijing tightened rules on new borrowing last year while property sales cooled. This has forced them to seek alternative sources of capital as debt payment deadlines loomed.
“Homes are for living in, not for speculation,” Ma wrote in an article published in the People’s Daily, the Party’s official newspaper, recalling similar exhortations by top officials in recent years.
The DRC, while not a decision-making body, submits policy proposals on China‘s national development and its economy to the State Council, or cabinet.
Shimao Group Downgrade
Meanwhile, S&P Global Ratings said on Wednesday it had downgraded property developer Shimao Group Holdings’ rating to “BB+” from “BBB-” over concerns that tough business conditions would hinder the company’s deleveraging.
S&P Global also lowered the long-term issue rating on Shimao’s senior unsecured notes to “BB” from “BB+”. S&P considers a rating under “BBB-” to be speculative grade.
- Reuters with additional editing by Jim Pollard
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