[photopress:china_real_estate_development.jpg,full,alignright]Some property projects in China have stalled because developers fear plans to collect a land appreciation tax might take out much of their profit. There is much in this apprehension. The move, by a government bent on stamping out property speculation, comes at a time when a raft of new funds are targeting the country, including those set up by global players ING Real Estate, Citigroup Property Investors and Invesco.
Hong Kong firms such as Cheung Kong and Hang Lung Properties are also funding a wave of investment as China’s 10% annual economic growth spurs property demand.
The tax was introduced in 1994 but largely ignored. In January Beijing issued a circular on how it should be levied.
Shares in Chinese property stocks such as Hong Kong-listed Shimao Property Holdings and Shanghai Forte Land, and Singapore-listed Yanlord Land Group fell sharply on fears the tax would cut profits. Which is, of course, the intent of the tax.
Several developers tried to assure investors they had already put money aside to pay.
In Shanghai government-backed building of five-star hotels, top-tier offices and facilities for the World Expo 2010 are going ahead.
Nancy Marsh, head of China property tax services at consultants Deloitte, said that a month after Beijing issued the circular, local authorities still haven’t decided how to collect the tax. She said, ‘There are still a lot of uncertainties. It will take a while for local authorities to figure out things that depend on their discretion.’
Developers are likely to be subject to between a 30 and 60% levy on the gain in land value although there is some confusion over how much they will pay. According to Deloitte’s calculations, the tax could slash 10% off the after-sales profit of a property project with a gross profit margin of 50%.