China is thinking about introducing a higher taxes on real estate, which is new to China. It is possible that the new tax will be a U.S.-style property tax- which would mark a significant escalation of its struggle to cool down a booming property market.
The large construction that has been going on throughout China is the main recovery driver for China. Construction also reinforces China's demand for raw materials, which helps support global prices for commodities.
Local economists want to use the taxation to curb property speculation and bring in runaway prices. Chinese authorities have been said to be considering higher transaction taxes that target luxury properties or possibly a tax on property values similar to the style of local governments in the U.S.
The reasoning is that higher taxes will make it less attractive to invest in real estate. Local governments having more revenue from property taxes could reduce their incentive to keep prices high to profit from sales of land-use rights.
Opponents fear new taxes would shatter confidence in the real-estate market, leading to a bust that would damage the entire economy.
China increasing the real estate tax is not very surprising. What China at this moment is trying to do is prevent the over heating of the economy. Similar to what happened to the US after the technological boom of 1990, people of China are all of a sudden starting to feel rich. This is becuase of the double digit GDP growth that China has been maintaining for a while. If China is to prevent an economic hard time like the United States this is probably the best time and best effort. China's policy would prevent people who don't deserve a home of their own, to get loans for the housing investment.
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