In order to cool the over heated Chinese economy in general and property prices in specific the Chinese Government has levied a property tax applicable to local residents for the purchase of a second home or more, and also non‐local residents for any new home purchase, starting with the cities of Chongqing and Shanghai.
The tax structure in Chongqing for homes with selling price 2‐3 times higher than the city average, the tax rate will be 0.5% and will increase to 1% for homes with price between 3‐4 times the city average, and further to 1.2% for homes with price above 4 times the city average.
The taxable value will initially be based on the purchase price, and may switch to be based on appraisal value in 3‐5 years' time. The property tax will also be applied to existing and newly purchased villas.
This move by the Chinese authorities which may also follow to the other cities in China has a dual implication on the global markets.
On one hand it sells a strong signal that the China is in a desperate situation to control its housing bubble and prevent a US like situation and will introduce further such measures as well as rate hikes in near future to cool down its economy. This could have serious implications for the global commodity and metal markets and could lead to a correction in the shares of Indian metal and mining companies.
On other hand the optimists could take this move as a good long term safeguard for the economy despite having negative short term implications. This would mean that China will not burst like US as a bubble because if this happens then the implications for the global economy could be much severe compared to the US burst. This will send signals to the commodity and real estate speculators in China regarding the government's stance against rising prices and hence would give a breather to the already high Chinese Inflation and hence result in slower rise in the interest rates in China.
Thus, I would take this move as a positive one for the Chinese economy and hence for the global commodity and capital markets.
Happy Investing...!!!
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