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More 'Affordable Houses' Expected in Wake of Land Tax Enforcement

A revived capital gains tax imposed on Chinese real estate developers has brought hope to many Chinese citizens who can not afford to buy an apartment.

China announced on Wednesday the enforcement of a land appreciation tax of 30 to 60 percent on net gains made from all property development deals. With the new rules, real estate developers' juicy profits will be cut in half.

"It is a lot of money. Will the government build more affordable houses for us with it?" said Tian Yu, a 23-year-old girl who graduated last summer and now teaches at a Beijing-based university.

According to the regulation, the government will collect the tax as soon as development projects are finished or transferred. But it did not elaborate how the tax revenue would be spent.

Housing prices have been rocketing in Chinese cities over the last couple of years. Thursday's figures from the National Bureau of Statistics showed that the price of newly-built apartments in Beijing rose 10.4 percent year-on-year last December.

New apartments within Beijing's fifth ring road have all seen their prices exceed 10,000 yuan (US$1,200) per square meter.

For young college graduates in Chinese cities, buying an apartment near their offices has become a mission impossible. The government finances a few real estate projects and sells these "affordable houses" to young people every year. But compared with the huge demand, they are far from enough.

Tian Yu learned about the tax news from Thursday's newspapers and is glad the fat profits of real estate developers will be squeezed. "Developers do not make any technical innovations. They just get cheap land, employ low-paid migrant workers to construct buildings, then sell them to consumers, earning a 100 percent profit."

But Tian was disappointed the government did not reveal how they would use the tax revenue. "The money should be put into a special account and used for building more affordable houses," she said.

Zhang Yang, a student studying economics at a Beijing-based university, said that as the Chinese government would get even richer with the collection of the new tax, it should make good use of the money.

Official statistics showed that China's total tax revenues reached a record high of 3.8 trillion yuan (US$480 billion) in 2006, an increase of 22 percent year-on-year.

Moreover, the country's foreign exchange reserve exceeded US$1 trillion at the end of 2006, up 30.22 percent over that at the end of 2005.

"The government is rich, but many people are still poor," said Zhang. "The government should spend the money properly and put people's living needs at the top of their agenda."

Zhang has another concern about the new tax. "The real estate developers might transfer the tax burden to consumers and push up the housing prices even higher."

"Then the housing dream will be even further away," said Zhang.

(Xinhua News Agency January 19, 2007)


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