Starting from December 1, 2024, Shanghai will abolish the standards for ordinary and non-ordinary housing, and adjust the relevant tax matters for individual housing transactions accordingly, expanding the coverage of preferential tax policies for housing transactions.
Why is Shanghai introducing this policy? What is its significance? What impact will it have on the future trend of the real estate market?
To address these questions, reporters from The Paper (www.thepaper.cn) interviewed several industry experts to provide a detailed interpretation of the background, significance, and impact of this new policy.
Policy Interpretation: Continuously Unleashing the Combined Effect of Policies and Strengthening Market Confidence
Recently, the Ministry of Finance, the State Taxation Administration, and the Ministry of Housing and Urban-Rural Development issued the “Announcement on Tax Policies Related to Promoting the Stable and Healthy Development of the Real Estate Market” (hereinafter referred to as the “Announcement”), clarifying preferential policies such as value-added tax that are linked to the abolition of the standards for ordinary and non-ordinary housing. To implement the national work plan and better meet residents’ rigid and improved housing demands, the Shanghai Municipal Housing and Urban-Rural Construction and Management Commission, the Municipal Housing Authority, the Municipal Finance Bureau, and the Municipal Taxation Bureau jointly issued the “Notice on Matters Related to the Abolition of Ordinary Housing Standards” (hereinafter referred to as the “Notice”). The Notice clarifies two main points: first, the abolition of the standards for ordinary and non-ordinary housing; second, the adjustment of relevant tax matters for individual housing transactions after the abolition of these standards.
“The optimization of real estate tax policies this time is also based on the background of the positive development of the real estate market,” said Yan Yuejin, Deputy Dean of the Shanghai E-House Real Estate Research Institute. According to recent national 70-city housing price index data released by the National Bureau of Statistics, the real estate market has shown a good trend of stabilizing and recovering. Among them, Shanghai’s indicators are at the forefront of the country. Currently, Shanghai is implementing the optimized real estate tax policies, which, based on the positive trend of the real estate market, will interact with administrative, land, financial, and other policies to continuously unleash the combined effect of policies.
Lu Wenxi, a market analyst at Shanghai Centaline Property, believes that this new policy meets market expectations for timely implementation. “The cancellation of the ordinary housing standards mentioned in the ‘Shanghai Seven Policies’ was highly anticipated by the market initially because it involves changes in related tax standards such as value-added tax and personal income tax, which can save a lot of transaction costs,” he said. This policy timely addresses the concerns of the general public and can further consolidate and strengthen market expectations and confidence.
Tax Adjustment: Reducing Housing Transaction Costs, with Positive and Obvious Policy Effects
The “Shanghai Seven Policies” issued at the end of September have clarified the timely abolition of the standards for ordinary and non-ordinary housing in accordance with the national work plan, aiming to reduce housing transaction costs and better meet residents’ improved housing demands. In Yan Yuejin’s view, after the policies of the three ministries and commissions, including the Ministry of Finance, were released, Shanghai actively implemented them and officially abolished the standards for ordinary and non-ordinary housing. As a result, the related taxes linked to these standards will have room for optimization.
According to the Notice, the abolition of the standards for ordinary and non-ordinary housing mainly involves adjustments in three aspects: deed tax, value-added tax, and personal income tax. Yan Yuejin provided a detailed analysis of these adjustments.
Regarding deed tax, the new policy will help reduce subsequent home purchase costs. “After reviewing the impact of the adjusted deed tax policy on Shanghai’s housing transaction process, two changes can be seen,” he said. On the one hand, for homes with an area of 140 square meters or less purchased in Shanghai, the deed tax will be reduced to the lowest level, i.e., 1%, which basically covers the majority of rigid and improved housing demands and strongly supports home purchasing behavior. On the other hand, the tax reduction effect for deed tax on the purchase of a second home is more pronounced. For example, for a home with a total price of 10 million yuan, the highest deed tax before the new policy was 300,000 yuan, while after the new policy, it can be as low as 100,000 yuan, a direct reduction of 200,000 yuan.
In terms of value-added tax, the policy effect is positive and obvious. “On the one hand, it effectively reduces the cost of selling a home for Shanghai homeowners,” he said, giving an example: if someone purchased a home for 6 million yuan in 2014 and the home’s price is 10 million yuan in 2024, the appreciation is about 4 million yuan. Since the holding period exceeds two years, the value-added tax is about 5% of 4 million yuan, i.e., 200,000 yuan, but after the new policy, this value-added tax no longer needs to be paid. On the other hand, reducing the cost of selling a home for homeowners will increase their enthusiasm for listing and selling, which in turn will increase the listing of high-quality second-hand homes and have a positive effect on expanding home buyers’ choices.
In terms of personal income tax, Shanghai currently implements a differentiated personal income tax policy in the housing transaction process. Ordinary housing is taxed at 1% of the transfer income, while non-ordinary housing is taxed at 2% of the transfer income. After Shanghai abolishes the standards for ordinary and non-ordinary housing, the tax rate for the assessed collection will be unified at 1%, with a significant tax reduction effect. For example, if a homeowner in Shanghai sells a home with a total price of 10 million yuan, the personal income tax before the new policy might be 200,000 yuan, while after the new policy, it might only be 100,000 yuan, continuously reducing the cost of selling a home.
Market Outlook: Supply and Demand Relationship Will Be Optimized, Real Estate Market Development Will Be Positive
What will be the trend of the real estate market after Shanghai introduces this new policy?
Yan Yuejin believes that currently, Shanghai’s real estate policies have entered the most lenient stage in history. Since the “recognizing homes but not loans” policy last year, Shanghai has continuously adjusted and optimized policies in the fields of administration, land, finance, and taxation, with strong policy efforts and wide coverage, effectively supporting the release of rigid and improved housing demands. Meanwhile, with a series of favorable home purchasing policies and environments, including low home purchasing thresholds, low down payment ratios, low mortgage interest rates, and low tax costs, the policy effects are expected to continue to be released.
“Under a series of favorable policies, the Shanghai real estate market will develop in a positive direction, and there will be room for the continuous release of home purchasing demands,” he said. Since October, the pace of entering the Shanghai real estate market has significantly accelerated, and diversified home purchasing demands have been actively released. Although the tax optimization policy will be implemented starting from next month, it will not affect house sales in mid-to-late November, and various taxes that have not yet been declared and paid can also enjoy tax reductions. He also believes that the interaction effect between “policies and the market” has significantly enhanced, and market confidence has continued to increase. With active adjustments on both the supply and demand sides, the supply and demand relationship in the Shanghai real estate market will be optimized, and the Shanghai real estate market will develop towards stability and health.
In Lu Wenxi’s view, according to the 70-city housing price data released last week, positive changes have emerged in Shanghai, with the existing market shifting from continuous declines to a slight increase on a month-on-month basis. Driven by favorable policies, transactions for rigid demand projects in the Shanghai real estate market have been active. This new policy will significantly reduce transaction costs for large homes, benefiting the release of improved demands and forming a continuation of hot spots. “After all favorable policies are fully realized, buyers may act faster, and this enthusiasm in the second-hand housing market is expected to continue until the end of the year. As transaction volumes remain high, prices are also expected to be consolidated, accelerating the bottom-building process,” he said.