China overtakes Japan as world's #2 economy
Beijing introduces first property tax for home buyers
If China becomes the new superpower, it won’t be from its size or army or holding loans to the US; it’ll be because its government makes more rational decisions than do other politicians elsewhere. We trim, blend, and append four 2011 articles about China from: (1) MarketWatch, Jan 20, on size by Chris Oliver; (2) People's Daily, Jan 21, on affordability; (3) BBC, Jan 28, on a sales tax; and (4) CNA, Jan 17, on a withholding tax by Wei Shu, Lin Ye-fong and Alex Jiang.
by Oliver, by People’s Daily, by BBC, and by Wei, Lin & Jiang
China overtakes Japan as world’s No. 2 economy
China’s double-digit growth, 10.3% for the full year, effectively displaces its Asian neighbor from a global ranking it has held since 1968. China’s nominal gross domestic product totaled 39.79 trillion yuan ($6 trillion dollars) at end 2010.
The data comparing the sizes of the two economies involves purchasing-power-parity adjustments that can raise the apparent GDP of developing countries. The figures can be misleading because the prices of certain goods and services are relatively low in developing countries.
China’s GDP per capita lags well behind Japan’s. Per capita GDP in China was about $4,412, compared to $42,431 in Japan.
JJS: As people prosper (however much it is), they bid up the price for land, making it and any houses upon it too spendy for some people.
Beijing to unlock affordable homes
Beijing plans to make an additional 200,000 homes available in 2011, renting them out to cash-strapped residents in a bid to mitigate the problem of high-cost housing.
The move marks a shift in policy from the previous practice of mainly selling affordable housing instead of leasing it out.
Qin Haixiang, a director of the Beijing Commission of Housing and Urban-Rural Development, said the city government will both construct and buy the 200,000 additional homes.
The number is a huge increase on 2010, when only 10,000 such rental homes were available through the city government.
Property developers will be able to reduce their investment in public rental housing because they will now only need to pay land rent, instead the one-time land premium.
Public rental housing typically offers homes that are between 15 and 20 percent cheaper than commercial housing.
It would take a person earning the average salary in the capital -- 4,000 yuan per month -- 50 years to save enough money to buy a 100-sq-m apartment, assuming he saved every penny he earned.
Pan Shiyi, CEO of SOHO China, said housing prices will go down if the government raises the minimum down payment required to 50 percent or even 80 percent of the full purchase price. At the moment, people can buy a home by putting down 20 percent of its selling price.
JJS: That’s one idea. A better one is to recycle local site values into the pockets of all residents, not just to those in power. More on this geonomic solution below.
China introduces first property tax for home buyers
China has introduced its first property tax for homebuyers to try to curb record house prices and tame inflation.
The measure will apply to those buying second homes in Shanghai and Chongqing. The tax, paid annually, is between 0.4% and 1.2% of the purchase price, depending on how the price compares with market averages.
At 10.3%, China's economy is growing far faster than that of any other major country. But prices inflated by 4.6% in December.
The ultimate aim of the tax was to prevent hoarding of properties, rather than to rein in prices, according to Michael Klibaner, head of China research for property company Jones Lang LaSalle.
"When the holding cost is zero, it's very easy to let these homes sit idle. It doesn't cost you anything to let them sit there. Now there's a holding cost - the hope is it will change the way people perceive real estate as an asset class."
JJS: Taxing real estate sales a small amount might discourage some speculators somewhat. A different tax -- on withholding land from use -- might help some, too. A better tax yet would fall only on the location and at a rate high enough to recover its annual rental value. May these lesser taxes be headed that way.
Taiwan reinstates tax on vacant land
Taiwan's government approved the reinstatement of a tax on vacant land to spur land use, but questions remained over how a "vacant" property would be defined.
The tax is targeted at landowners who sit on land for a certain period of time, hoping it will appreciate in value, rather than developing it.
Now local governments can either levy a vacant land tax on the underdeveloped properties that is two to five times higher than the standard land value tax, or purchase the land at its existing price.
By reducing speculation and promoting land development, the tax is expected to help rein in soaring land prices.
Taiwan's government suspended the tax in the 1980s amid an economic downturn to boost the property market.
Kingdom Construction Corp. Chairman Timothy Ma said the vacant land tax should not apply, however, to developers who have made land development proposals and are waiting for their licenses or the results of urban planning reviews or environmental impact assessments.
Jessica Hsu, spokeswoman for local real estate broker H&B Business Group, said the tax would not have a major impact on large developers as the value of their land is far higher than the cost of keeping the land undeveloped.
The impact would be more strongly felt by smaller construction companies or private citizens who inherit vacant land, she said.
Stanley Su, a manager at Sinyi Realty Estate Inc., said the vacant land tax would encourage the supply of housing units in areas where strong demand already exists rather than in areas where demand for housing is weak.
JJS: The Chinese, including the Taiwanese, deserve high marks for understanding how taxes and land prices interact and for having the gumption to confront speculators and levy land.
Still, a better approach to taxing here for a while, taxing there for a while, is simply to recognize that that the value of land -- that all the money that people spend for land and resources and nature in general -- is commonwealth; it’s a profit that belongs not just to insiders or investors but to all members of society equally.
Land, our common heritage, is not a proper object of speculation. And nobody would speculate in land if they couldn’t profit from doing so. And they couldn’t profit if, instead of keeping “rents” for themselves, they had to pay land dues to society (set at the annual rental value of the location). Rather than withhold land from use, then they’d only try to profit by building homes (and other structures).
Government should share out the recovered revenue so residents can afford to live in desirable cities. Use the revenue to pay residents a dividend or at least a housing voucher. Then, no matter how expensive locations become, people will always get a share of that value and be able to afford to live on or near the spendy land.
While the price (or rent) for land would rise in a society that is prospering, it would not inflate since nobody would speculate. The price of land would always accurately reflect demand and supply. High land prices would be a blessing, if everyone got a share -- and getting a share to everyone could be a way to advance this geonomic idea.
Editor Jeffery J. Smith runs the Forum on Geonomics.
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