On November 13th, the Ministry of Finance, the State Administration of Taxation, and the Ministry of Housing and Urban-Rural Development issued the "Announcement on Tax Policies to Promote the Stable and Healthy Development of the Real Estate Market" (hereinafter referred to as the "Announcement"), which includes optimizing the housing transaction deed tax policies and clarifying the cancellation of value-added tax and land value-added tax preferential policies related to the standards for ordinary residences and non-ordinary residences (referred to as "ordinary residences"). The State Administration of Taxation also released an "Announcement on Lowering the Lower Limit of the Pre-collection Rate of Land Value-added Tax," which reduces the lower limit of the pre-collection rate of land value-added tax. Relevant policies will take effect on December 1, 2024.

In simple terms, this policy adjustment will increase the benefits for residents purchasing houses, reduce the transaction costs of second-hand houses, and alleviate the financial pressure on real estate companies. Li Yujia, chief researcher at the Housing Policy Research Center of the Guangdong Provincial Urban and Rural Planning Institute, pointed out to reporters from the brokerage China that this policy adjustment is aimed at reducing the tax burden in the transaction link. As the real estate market shifts from the incremental era to the stock era, the direction of real estate tax reform will be to reduce the tax burden in the circulation link and promote a virtuous cycle of trade.

The heads of the relevant departments pointed out that in light of the current running situation of the real estate market, further adjustments and optimizations of related tax policies are made to increase support and promote the stable and healthy development of the real estate market.

Taking a second-hand house in Shenzhen with a transfer price of 10 million yuan and an area between 90 square meters and 140 square meters as an example, before this policy optimization, the deed tax rates for the first and second houses were 1.5% and 3% respectively, whereas after the policy optimization, the deed tax rates for the first and second houses were 1% and 1% respectively. Therefore, purchasing a first residence can save 0.05 million in tax fees, and purchasing a second residence can save 0.2 million in tax fees.

Increase benefits for residents purchasing houses.

Regarding deed tax, this policy adjustment mainly increases the preferential policies for deed tax in housing transactions, actively supporting residents' rigid and improving housing demands.

The "Announcement" stipulates that for individuals purchasing the only housing for their families (the family member range includes the house purchaser, spouse, and underage children), for those with an area of 140 square meters or less, a deed tax rate of 1% will apply; for those with an area greater than 140 square meters, a deed tax rate of 1.5% will apply.

For individuals purchasing a second family residence, if the area is 140 square meters or less, a deed tax rate of 1% will be applied; if the area is more than 140 square meters, a deed tax rate of 2% will be applied.

In simple terms, after this policy adjustment, across the country, for individuals purchasing a first and only family residence or a second family residence, as long as the area does not exceed 140 square meters, a uniform deed tax rate of 1% will be applied. First-tier cities will no longer have "differential treatment."

"This policy implementation will further reduce the cost of homeownership for buyers, which is quite bullish for both first-time and improved housing demands, with even greater tax incentives for first-tier cities," said Chen Wenjing, policy research director of the China Index Academy, to the brokerage China reporter.

According to calculations by the China Index Academy, using a unit price of 0.05 million, the property areas of 80, 100, and 150 square meters have first-time home deed tax rates of 1%, 1.5%, and 3% respectively, while second home deed tax rates are 1%, 2%, and 3% respectively, and the second home deed tax rate in "Beijing, Shanghai, Guangzhou, and Shenzhen" is 3%.

After policy optimization, the first home deed tax rates are 1%, 1%, and 1.5%, with discounts of 0 yuan, 0.025 million yuan, and 0.1125 million yuan respectively; second home deed tax rates are 1%, 1%, and 1.5%, with discounts of 0 yuan, 0.05 million yuan, and 0.075 million yuan respectively, with discounts for second homes in "Beijing, Shanghai, Guangzhou, and Shenzhen" being 0.08 million yuan, 0.1 million yuan, and 0.075 million yuan.

Adjusting the "luxury tax" reduces the transaction costs for second-hand houses.

Regarding the value-added tax and land value-added tax, which connect the standards between ordinary houses and non-ordinary houses, this policy adjustment mainly clarifies and cancels related tax incentives, reduces transaction costs for second-hand houses, and maintains stable tax burdens for real estate enterprises.

The cancellation of the ordinary house and non-ordinary house standards is a key reform measure to accelerate the construction of a new model for real estate development. Previously, when individuals sold houses, ordinary houses enjoyed greater tax incentives compared to non-ordinary houses. Since non-ordinary houses typically refer to luxury villas, high-end apartments, resorts, etc., the related tax policies are also referred to as "luxury tax."

Recently, the four cities of "peking, shanghai, guangzhou, and shenzhen" have successively issued documents to cancel or adjust the standards for ordinary residences and non-ordinary residences. This adjustment in tax policy is in line with the measures implemented by various regions to cancel these standards.

The announcement stipulates that in peking, shanghai, guangzhou, and shenzhen, any cancellation of the ordinary residence and non-ordinary residence standards will result in the unified application of the personal sales housing value-added tax policy applicable to all other regions in the country. For individuals in these cities selling houses that have been purchased for over two years (including two years), they will be exempt from value-added tax.

For cities that have canceled the ordinary residence and non-ordinary residence standards, the announcement clearly states that taxpayers who construct ordinary standard residences for sale, with value increments not exceeding 20% of the deductible item amount, will continue to be exempt from land value increment tax.

Tian Zhiwei, deputy director of the Public Policy and Governance Research Institute at shanghai University of Finance and Economics, pointed out in an interview with brokerage China that the value-added tax policies related to ordinary and non-ordinary residence standards mainly target second-hand housing transactions, helping to reduce the tax burden on non-ordinary residences. The land increment tax primarily targets new housing transactions and has a significant impact on the tax burden of real estate companies. Therefore, unifying and standardizing the relevant systems of value-added tax for new housing is crucial for the healthy development of the real estate industry.

Unified reduction of the lower limit of pre-collection rates to alleviate financial pressure on real estate companies.

Regarding land value increment tax, this policy adjustment mainly unifies the lower limit of the pre-collection rate across various regions by reducing it by 0.5 percentage points.

China's land value increment tax implements a pre-collection system. To fully utilize the regulatory role of the pre-collection of land value increment tax, the State Administration of Taxation issued a document in 2010 to clarify the lower limits of pre-collection rates for each region, with the eastern region at 2%, the central and northeastern regions at 1.5%, and the western region at 1%.

After this adjustment of the pre-collection rates, the lower limit for the eastern region, excluding affordable housing, is set at 1.5%, 1% for the central and northeastern regions, and 0.5% for the western region.

Chen Wenjing pointed out that with the continued adjustment of the real estate market, the actual tax rate of land value-added tax for many real estate projects has significantly decreased. Many companies are in a state of overpayment of taxes and fees, and if these funds cannot be refunded in a timely manner, it will increase the financial pressure on companies. This time, the unified reduction of the lower limit of the land value-added tax pre-collection rate in various regions is beneficial for lowering the pre-collection and advance payment of land value-added tax, reducing financial pressure on companies, and stabilizing company expectations.

Editor/Lambor