Land-based finance and property tax in China

Over the last two decades, cities in China have relied heavily on the revenues from public land leasing to finance urban development. This source of revenue is not sustainable. To address this issue and a distorted housing market, the current municipal finance reform agenda aims to introduce a property tax on the ownership of private residential properties. However, significant hurdles exist as a majority of urban households have purchased housing properties in the absence of a property tax. This paper proposes a few measures to help pave the way for property tax implementation. These include adopting a low tax rate in the early stage, allowing time for the adjustment of household housing investment portfolios, allowing ready cities to implement a property tax first, as well as reforming the price structure of public land leasing.