New housing market rules take effect: 'a golden time to buy or sell a home'

Shanghai's realtors report a pickup in home buyer and seller interest after the latest round of city policies to help shore up a market that has been struggling for years.

The latest preferential policies, which came into effect this month, lower the costs of buying and selling homes. They include an exemption from paying value-added tax on sales of properties that have been held for two years or more. For properties sold within two years of purchase, a full 5 percent VAT will apply.

In addition, the new measures reduce personal income and deed taxes related to home transactions. Under the changes, the 2 percent deed tax imposed on sales of housing larger than 140 square meters is halved to 1 percent, equal to the tax levied on smaller properties. For individuals purchasing a second home, a reduced deed tax rate of 1 percent applies for properties of 140 square meters or less, while a reduced rate of 2 percent applies for properties larger than 140 square meters.

The relaxation of market rules follows several policy changes enacted earlier this year, including a reduction in the minimum down payment ratio to 15 percent and a relaxation on homebuying restrictions.

"There has been a long queue of people coming for real estate business here almost every day," said an employee of the Jiading real estate transaction center.

The latest government efforts to shore up the property market come as China seeks to put a floor beneath a slump that began with the 2021 debt default of giant property developer Evergrande Group and spread to other developers. As a result, the stock of empty or unfinished housing grew, prices stagnated or dropped, sellers disappeared and buyer interest faded.

Shanghai home seller Zhang Cailan got up early after the new measures came into effect and went to the Jiading real estate transaction center. She said she figured the city's new housing policies saved her about 100,000 yuan (US$13,722).

"I sold the 80-square-meter house I bought three years ago for 5 million yuan – a million more than I paid for it," she said. "Before the new policy, I would have had to pay 50,000 yuan in value-added tax, but now that is waived. In terms of personal tax, I only need to pay 50,000 yuan instead of 100,000 yuan."

A man who lives in the nearby city of Suzhou also showed up at the realty agency, looking at buying a second home in Jiading New Town.

"I contacted my agency immediately after the new policy took effect," he said. "I had been hesitating because of my financial limitations. But to purchase a second home of 140 square meters, I can now save around 180,000 yuan. It's very cost-effective."

A staffer at real estate broker Lianjia said the new policy does significantly reduce the cost of selling houses.

"I have a client here who recently sold a home in Xuhui District for 10 million yuan," he said. "The personal taxes paid on the sale are reduced by about half, to 100,000 yuan."

Past government efforts to address problems in the property market have had mixed results. Will the latest measures stabilize the market?

"We are finally at an inflection point of the ongoing downward spiral in the housing market," wrote Yi Wang, who heads up the China real estate team at Goldman Sachs Research. "This time is different from the previous piecemeal easing measures, in our view."

The local property market has indeed shown signs of a solid recovery. Sales of existing houses in November rose 11 percent from the previous month to 27,050 units – the highest monthly volume this year and about two-thirds up from a year earlier.

The picture also looks bright in new home sales. Shanghai Centadata reported that 784,000 square meters of new homes were sold in the city in November, a 22 percent increase over October and a 49 percent surge from a year earlier.

Yan Yuejin, deputy director at E-house China R&D Institute, said he believes the latest policies have every appearance of success.

"I think that the Shanghai real estate market has entered its most relaxed stage in history," he said. "It is a golden time to buy or sell a home."

Yan added, "Together with a series of favorable policies, including low thresholds for home purchase, low down payment ratios, low mortgage interest rates, and low tax costs, this policy will bring real benefits to more people."