On November 13, the Ministry of Finance, the State Administration of Taxation, and the Ministry of Housing and Urban-Rural Development jointly released an announcement regarding tax policies to promote the stable and healthy development of the real estate market. Following this policy adjustment, related taxes in housing transactions are set to decrease significantly. How much can home buyers actually save? What will the future of the real estate market look like?
In this episode of “Chief Connection,” we invited Zhang Bo, director of the 58 Anjuke Research Institute, and Yan Yujin, deputy director of the Shanghai E-House Real Estate Research Institute, to analyze and forecast the new policies.
Transaction Costs Expected to Drop from 10% to Below 3%
The Paper: On November 13, three government departments jointly announced multiple real estate-related tax policies. Could you briefly explain the main background for these tax policy adjustments?
Zhang Bo: The recent adjustments to the housing market have been incremental. We need to look at the November 13 policy in conjunction with a series of previous policies. The earliest can be traced back to this year’s Central Politburo meeting, which clearly emphasized the need for the real estate market to “stop falling and stabilize.” To achieve this, adjustments are needed across various aspects.
From the supply side, there are risk mitigation adjustments for developers, such as increased support for projects on the whitelist. On the demand side, which is our focus on home buyers, many policies are needed to stabilize expectations. Recently, the Ministry of Finance also mentioned at the National People’s Congress that real estate tax policies would be further adjusted, and it was encouraging to see that just five days later, the policy was implemented.
In terms of the policy’s actual release, we see significant adjustments in VAT, deed tax, and interest rates aimed at the demand side, as well as adjustments in taxes related to developers and land appreciation tax on the supply side. Overall, we believe this policy is timely, coinciding with a resurgence of market confidence after October and November’s uptick in market activity, acting as a vital booster for sustained recovery.
The Paper: What are the main contents of the real estate market tax policies involved in this adjustment?
Yan Yujin: Apart from purchase restriction policies, interest rates on bank loans, down payment ratios, and tax policies are widely discussed topics. We can categorize these into three types: policies related to buying homes, selling homes, and those for developers. These three aspects are now interconnected.
Regarding buying policies, some citizens in Shanghai have asked about adjustments to deed tax. Previously, some home buyers faced a tax rate of up to 3%. The new policy has reduced the maximum deed tax rate to 1%, significantly lowering the cost of buying a home.
On the selling side, taxes are often perceived as costs incurred when buying, but similar taxes apply when selling homes. The recent tax reduction primarily targets value-added tax (VAT), which can be quite substantial, especially in first-tier cities where selling a home could incur taxes ranging from 100,000 to 200,000 yuan—essentially the cost of a small car.
Another important change relates to land appreciation tax, which developers must pay based on anticipated future sales prices. This tax has increased the financial burdens on developers, but now, taxes on homes built by developers can be waived.
The Paper: As mentioned earlier, the deed tax and VAT are closely related to buyers’ finances. Can you explain which specific changes will have the most significant impact on home buyers?
Zhang Bo: The impact of the value-added tax is substantial. It is a key tax in the entire transaction process. Previously, sellers did not feel the burden of this tax significantly because, during market booms, people focused on the net amount received from the sale. However, when the market cooled, these taxes shifted financial responsibility from sellers to buyers. Thus, the amount buyers end up with can vary greatly.
For instance, on a home costing 2 million yuan, if VAT is fully applicable, the tax burden could be quite high. The new policy has introduced a two-year exemption period for VAT.
Many people misunderstand the concept of the “two years.” The VAT exemption applies only to residential properties that have held the ownership certificate for over two years, not starting from when the purchase contract is signed. For example, if I buy a home now with a contract dated 2020 and I plan to sell it in 2024, I might think I qualify for the exemption. However, it depends on when I actually obtain the property certificate. Some buyers take a long time to process their ownership certificates, delaying the sale.
In first-tier cities, adjustments to the standards for ordinary and non-ordinary residential properties will also need to be observed, particularly regarding the timing of VAT exemptions starting from December 1.
Transaction Costs Significantly Reduced
The Paper: According to the new policy, the deed tax for the only family home and the second home, both not exceeding 140 square meters, is now set at 1%. How does this policy compare to previous standards, and which groups will be most directly affected?
Yan Yujin: Previously, the threshold for deed tax was based on 90 square meters, but it has now been increased to 140 square meters. This means that the vast majority of homes purchased by working families—about 80%—will fall under the new preferential tax rate.
The adjustments in tax policies are designed to maximize support for first-time buyers and those seeking to improve their housing situation. This aligns with the logic behind lowering down payment ratios and other measures aimed at ensuring that more home buyers can benefit from favorable policies.
Furthermore, the tax rate for homes over 140 square meters has also been adjusted, with the tax rate set at 1.5% for the family’s only home and 2% for the second home. This change significantly affects the higher-end housing market, particularly in Shanghai.
For example, purchasing a home worth 10 million yuan would have previously incurred a tax of 300,000 yuan at a 3% rate. Now, under the new regime, the tax is only 100,000 yuan, thereby saving 200,000 yuan—an amount comparable to the cost of a small car.
Market Response and Future Outlook
The Paper: In light of the new policies, how do you foresee the future trajectory of the real estate market?
Yan Yujin: This policy is consistently favorable for home sales. The current tax policies have clearly activated the market, which should sustain well into the fourth quarter. Looking ahead to next year, I believe that as long as housing prices remain stable and market confidence improves, coupled with favorable policies, the overall transaction climate in the real estate sector will be positive.
Moreover, we are witnessing a significant change where homeowners selling their properties become a new type of buyer in the market. This dynamic will substantially unlock market demand, alongside ongoing reforms related to housing vouchers and urban village upgrades, which will generate even more purchasing demand.
Zhang Bo: We can clearly judge that current prices are at the market’s bottom. Therefore, from at least the first half of next year, prices should remain stable. We anticipate that next year’s second half will perform better than the first half.
Notably, many cities are increasingly dominated by the secondary housing market, where transaction volumes have already surpassed those of new homes. We expect this trend to continue into next year.
The differentiation within the market is expected to persist and become even more pronounced. This includes not just differences between southern and northern cities or between cities themselves, but also within different districts and communities in the same city. For home buyers, this means that finding the right time and price to purchase a property will increasingly be a challenge.
Conclusion
The recent adjustments in tax policies aim to alleviate the financial burden on home buyers, effectively activating the market. By lowering transaction costs significantly, the government hopes to stabilize prices and encourage market activity. In the coming months, tracking the impact of these policies on transaction volumes will be crucial to understanding the health of the real estate market.