China Real Estate: Web Survey on Recent Land Tax

Stephen Chung

Managing Director

Zeppelin Real Estate Analysis Limited

February 2007

¡@(Based on Data from the China Real Estate Index System CREIS)

A progressive and more restrictive land tax will be imposed starting this month on profitable real estate development projects and it is expected most developers would face heftier taxes which in turn affect profitability and investment return. Naturally, many developers object to its imposition and the market participants, ranging from home buyers to real estate agents, harbor varying expectations and views. We have spotted a web survey hosted by and up to January 22, 2007, the results based on around 28,000 respondents are listed below:

Survey question 1 = do you agree to imposing the said tax (on real estate developers)?



No comment / Unsure




Survey question 2 = what effect the said tax will have on the current rising real estate price trend?

Further stimulate / increase

Stabilize / control

No effect whatsoever




Survey question 3 = do you think the said tax would affect the (reportedly handsome) profitability of real estate developers significantly / inversely?







Survey question 4 = do you consider land-hoarding (by real estate developers) for profit a serious problem or matter?

Very serious

Somewhat serious

Not serious




Survey question 5 = do you think the said tax would put a stop to land-hoarding as mentioned?







Survey question 6 = after the said tax was announced, listed real estate stocks dropped in share prices. Do you think this implies the end of the bull-run for listed real estate stocks? 

Yes, the bull-run is over

No, real estate is still bullish

Maybe, needs observation




Survey question 7 = which real estate companies will the said tax most affect? 

Lots of land banks

Small-medium co

Highly profitable co

Luxury focused





Notwithstanding the survey is web-based (thus not discounting the possibility of inaccuracies such as a respondent may fill in several surveys for fun or otherwise) and simplistic, it may help throw a light on the possible leanings of participants. A few summaries are listed below: 

A)     Almost 2/3 of participants generally agree to the imposition of the said tax

B)     A reason for the relatively high support may be due to the possibility that more than 90% of participants think land-hoarding for profit is serious (too much)

C)    Yet only around 1/5 of participants think the said tax would put a stop to land-hoarding

D)    On the other hand almost 70% of participants think real estate prices would continue to go up despite the said tax

E)     Just as only around 1/5 of participants think the real estate stock bull run would be stopped by the land tax

F)     Though around 1/2 also expect the profitability of real estate developers would be affected

G)    And 2/3 think the land tax affect real estate companies with many land banks or are small to medium in size

In a nutshell, the survey appears to suggest that people in general do not think the said land tax would dampen real estate prices, prices of real estate equities, or the inclination of real estate developers to hoard land for profit although the profitability of the latter would be affected.  

Notwithstanding the above and the various published commentaries since the said tax announcement, we think the actual effects may not appear until sometime has passed. Nonetheless, very preliminarily we think the said tax may have the following implications

a)      The stronger real estate developers may have an opportunity to weed out the weaker competitors and expand market shares

b)      Land prices may face downward pressure as real estate developers seek to maintain a certain required level of return and profitability

c)      Real estate supply may face reduction IF some real estate developers throw in the towels which in turn may mean price rises, if not for long at least for a while, given all things being equal 

As such, the said tax may not have a direct effect on real estate prices being mostly a ¡§supply-side¡¨ tax and the ability of real estate developers to pass all or in significant portion of the increased taxes onto purchasers depends on various factors including market sentiment etc, i.e. sometimes they can and sometimes they cannot. The view that increased costs lead automatically to increased prices is flawed*.  

*This is because real estate prices in the long term are affected by economic, social, demographic, administrative, financial, liquidity, and the like factors, but not its production elements and costs, comprising mostly of land and construction. The latter do affect a developer¡¦s (seller¡¦s) bottom line, yet real property purchasers (buyers) seldom give more because the developer or home builder has spent more in costs. Otherwise, no developer or home builder, or for that matter any business person / seller, will lose money IF purchasers are always willing to pay more than what the seller has invested. Purchasers pay a certain price because a) that is what other purchasers are willing to pay (to conform to and be competitive in the market); b) they expect the price to go up; c) they see values which others may not realize; d) they have a sentimental reason to do so; e) they wish to demonstrate their wealth (vanity), and so on, but never in order to help a seller avoid losing money, shirt, or fortune.

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