www.shaproperty.com

CHINA'S tax regulator ordered local governments to impose a 20 per cent capital gains tax on sales of second-hand homes, responding to a Cabinet directive to rein in surging property prices.

The tax applies to all sales unless the property was bought more than five years ago and is the seller's sole residence, the State Administration of Taxation said on its website on Thursday. The levy is included in China's 1994 personal income tax law, according to the statement, though it has not been enforced.

China's State Council said on Wednesday that it will restrict land for expensive housing and boost loans for low-cost homes, part of a six-point plan aimed at cooling the real estate market. The government is concerned that surging prices may fuel social unrest and raise the risk of a collapse that could cause a sudden slowdown in the world's fastest-growing major economy.

'The tax collection may not work, because it would boost transaction costs and deal a lethal blow to the property market,' said Mr Qiu Zhicheng, a Shanghai-based analyst at Haitong Securities. 'Other government measures may follow suit.'

Shares of China-related property companies including Beijing Capital Land fell for a second day on expectations that the measures will hurt prices and demand.

Home prices in the southern city of Shenzhen jumped 35 per cent in the first quarter from a year earlier, while in Beijing, they rose 14.8 per cent, said the city governments.

Additional measures the government may announce to stem such gains include further restrictions on property loans, new taxes on high-end properties, urging developers to speed up construction, and increasing the down-payment ratios of up to 40 per cent of the properties' value in some cities, according to Mr Bai Hongwei, an analyst at China International Capital Corp.

Said Mr Chen Zemin, an analyst at the Shanghai Academy of Social Sciences: 'These policies will temporarily hold back prices, but in the long term, the market is on the rise.'

BLOOMBERG NEWS