China's Problem With Housing Market Speculators

In a recent Economist article titled "China mulls a property tax: An odd sort of tax," China's struggle with rising housing costs was discussed.The country is currently experiencing a surge in property pricing, that was"helped by a torrent of carefree lending from state-run banks." There are now signs that sales are dropping due to this increase in prices caused by speculators.

The government is already fighting this trend by raising "down-payment requirements for second homes and the reimposition of a sales tax for properties sold within five years." The NPC, however, believes that a property tax may help prevent "speculators from hoarding empty property and help bring prices down." Some also believe it could help get rid of corruption in local governments.

The government has been running simulations to test the effect of the proposed law, but the local governments dislike the idea. Reducing property prices would hurt cities that sell land to developers. However, some want to law to apply to larger properties, but not residential, because most of the problems are being seen with speculators, and not the average Chinese citizen, but this will not please the cities because it will still affect the majority of their land sales.

Many believe that a property tax would not do much to slow the rising property prices "because of China's huge demand for housing as it urbanizes." The new law could improve government services by giving property owners reason to demand more from their government.

This proposed law can increase the legitimacy of China's local and national governments by reducing corruption and increasing the demand for government responsibility to property owners. It will also affect the economy, yet that part of the decision is still the most hotly debated part of the discussing, but will most likely stop a housing price increase that is remarkably similar to what happened in the US housing market recently.

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