Property tax could prevent surges in housing prices, says expert
Reversing the expectation that housing prices will never decline is key to deflating China’s housing bubble, and the property tax would be effective in curbing price surges, Zhu Ning, the vice dean of the PBC School of Finance at Tsinghua University (Tsinghua PBCSF) said at a finance forum last Sunday. Zhu Ning is an expert on behavioral finance, investments, corporate finance and the Asian financial markets.
Zhu Ning believes that the introduction of property tax would stop local governments from pushing up housing prices. Since last year, the Chinese government has rolled out a series of policies to regulate the property market. Experts widely believe that bubbles exist in the market and discussions about how to deflate the bubble have garnered widespread attention.
Zhu Ning believes three main factors have contributed to the abnormal boom in the market—one is the loose monetary policy and extreme liquidity, second is inexperienced investors and the third is government support. “To deal with bubbles, the most challenging and core part of the work is to reverse widespread expectations that housing prices can only go up,” said Zhu, noting the perceptive that houses are used to live in instead of speculate on should be more effectively delivered to the general public.
Investors generally expect that the government would continue to bolster the housing market, and with every housing surge, the expectation is strengthened, according to Zhu. He predicts only more active market adjustment could help reverse the pre-conceived idea. Many industry analysts have long talked about setting up a long-term mechanism to regulate the market, although Zhu believes the timing for such a move has gone.
He suggests the government adopts property tax in bid to regulate the market. Responding to the opinion that “property tax could hardly prevent prices from going up”, Zhu mentioned a survey made in the US which finds that in those states that levy heavier property tax, property prices usually increase slowly. So, an increase in the opportunity cost of holding a residential property would obviously reduce speculation.
It is argued that it is the governmental support that has kept housing prices at high levels. Zhu agrees with the opinion, indicating the booming housing market over the past 15 years is stirred up by China’s local governments, because they need to meet certain goals concerning fiscal revenues.
“If property tax can provide a stable stream of fiscal revenue to local governments, they will be discouraged from pushing up housing prices anymore,” said Zhu. 

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