On December 20, 2008, the General Office of the State Council issued the Several Opinions on Promoting the Sound Development of the Real Estate Market, which took effect on the same day. The State Council issued the Opinions to implement policies concerning the real estate sector that are laid out in the Ten Measures to Further Expand Domestic Demand and Promote Steady Economic Development. The State Council announced the Ten Measures on November 5, 2008.
In the Opinions, the General Office urges provincial governments and the State Council’s committees to make their best efforts in ensuring an adequate supply of social security housing. In recent years, various government documents and the public have used the term “social security housing” to refer to certain housing projects that aim to provide affordable housing to lower-income households. These housing projects may take various forms, including apartments sold at prices lower than the market price (“affordable housing units”), low-rent housing, and housing projects with a cap on price and square footage. In general, the government places limits on the qualification of purchasers or renters of social security housing, the construction standards, and the sale price or rent of the projects.
In the Opinions, the central government sets a three-year time frame to help lower-income households enhance their living conditions by building more low-rent and low-price residences, and renovating residences in poor condition. According to the Opinions, 1.3 million affordable housing units will be built from 2009 to 2011. In order to achieve the goals set forth in the Opinions, the central government encourages commercial banks to offer more loans for qualified developers of social security housing projects, and urges local governments to ensure a sufficient supply of land for such housing.
The Opinions also outline favorable policies for people purchasing their second residences to boost real estate sales. Under the Opinions, homeowners who have already purchased, with mortgages, an “ordinary residence for self-use” that is smaller than the average size for their locality may buy a second ordinary residence under favorable loan policies available to first-time buyers. Local governments have rules to define what constitutes an ordinary residence, typically placing caps on the size and price of the residence.
In order to promote the resale of residences, the General Office provides tax exemptions under certain conditions. The Opinions specify that homeowners who have owned their ordinary residences for two or more years, instead of the previously stipulated five years, can resell them without paying business tax. When selling their residences, homeowners who have owned their ordinary residences for less than two years will only have to pay business tax on their net profit, rather than the full sales price. According to the Opinions, the favorable policies above will be effective until December 31, 2009.
In addition, the Opinions abolish the urban real estate tax. Both domestic and foreign enterprises and individuals are entitled to the same tax rate provided under the Interim Regulations on Real Estate Taxation of the People’s Republic of China.
The Opinions represent the Chinese government’s third adjustment to real estate tax policies in 2008. In March 2008, the government lowered or abolished certain taxes concerning low-rent housing and affordable housing units, and in November 2008, the government lowered the deed tax rate on certain ordinary residences, and exempted the stamp tax on personal residence transactions.
Feeling the hit of the global financial crisis and the slowdown of the Chinese economy, the real estate market in China has cooled down in recent months. As signaled by the Ten Measures, the Chinese government is striving to expand domestic demands to keep the momentum of China’s economic growth. In implementing the Ten Measures, The Opinions indicate that the Chinese government places a lot of weight on the real estate market as one of the drivers of the nation’s economic growth, and is attempting to find a balance between encouraging the development of market-oriented real estate transactions, and appeasing the public outcry over skyrocketing housing costs in recent years.