China Unveils Plan to Bolster Real Estate, Ensure Growth

By Jason Simpkins
Associate Editor
Money Morning

In its latest effort to maintain an annual economic growth rate of 8%, China announced new plans to stimulate the country’s ailing real estate sector.

Beijing said the new stimulus package will benefit 7.5 million low-income urban families and 2.4 million households located in the more remote countryside.

China pumped $387.5 billion into real estate development over the first 11 months of the year, up 22.7% from the same period in 2007. However, residential sales fell 18.8% year-over-year, despite the investment.

Beijing is now trying to reignite the once red-hot real estate sector by implementing the following reforms:

  • Owners who have owned their home for two or more years can now sell it without paying business taxes. Owners previously had to wait five years before selling their home tax-free.
  • Owners who have owned their home for less than two years will now only be required pay taxes on their profit, not the total sales price. The tax rate of 5% remains the same.
  • People with “smaller-than-average” apartments can now buy a second apartment under more favorable loan terms, with size limits being set on a region-by-region basis.
  • Financial institutions are also being encouraged by Beijing to make more funds available for mergers and acquisitions among property developers.

The new regulations are temporary, valid for only one year, and their effects aren’t likely to be seen until the second half of 2009.  Still, they are expected to work in concert with other measures to stabilize the real estate market and help maintain a high level of broad economic growth.

Previous measures earlier this year included cutting mortgage rates, taxes, and down payments for first-time homebuyers.

Recent measures taken by the nation to boost domestic consumption and revive economic growth have had a positive impact on the real estate market as transaction volumes have rebounded,” the State Council said in a statement. “We need to take more forceful measures to ensure investment in real estate and its healthy development.”

Sales volumes increased in November from the previous month in cities including Beijing, Shanghai and Shenzhen.

The government also recently unveiled a $585 billion (4 trillion yuan) stimulus package that to boost investment in infrastructure projects, such as water and energy projects, airports, disaster relief, and $ new railroads over the next two years.

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