Real estate welcomes a generous tax package: both deed tax and value-added tax will be reduced, benefiting both homebuyers and real estate companies.

Caixin News on November 13 (Reporter Li Jie) Policies supporting the real estate market in terms of finance and taxation are being implemented at an accelerating pace. On November 13, the Ministry of Finance issued a notice regarding tax policies to promote the stable and healthy development of the real estate market, specifying several tax preferential policies to support the development of the real estate market, including exemptions for deed tax and value-added tax. "The tax adjustment this time meets market expectations. Among them, the reduction in tax and fees for non-primary residential properties and just-renovated properties of 90-140 square meters in first-tier cities is significant. For homebuyers, the taxes and fees for new homes mainly consist of deed tax, while second-hand homes involve deed tax, personal income tax, and value-added tax. Therefore, this policy favors second-hand homes more, and we believe that this favor will be more apparent in the transaction volume of second-hand homes in the future, and will also strengthen the sales performance of real estate agencies in the fourth quarter." Zhejiang Real Estate analyst Yang Fan told reporters. For real estate companies, Yang Fan pointed out, "The relaxation of the land value-added tax policy helps alleviate the cash flow pressure on real estate companies and also favors the profit restoration of real estate companies. The support for developers exceeds previous expectations." Chen Wenjing, policy research director at Zhongzhi Research Institute, believes that this policy will have substantial benefits for both homebuyers and real estate companies. By reducing the cost of home ownership for homebuyers and easing the financial pressure on developers, this policy will further stabilize market expectations and boost homebuyers' confidence. She further stated that the real estate market showed a "phase of stabilization" in October, and the successive implementation of financial and tax policies is expected to further strengthen the pace of market recovery, helping the real estate market to stop declining and stabilize. Adjusted deed tax: Buyers of second homes in first-tier cities benefit the most Analysts point out that in the real estate transaction process, the previous deed tax policies were generally as follows: for the first home, below 90 square meters, deed tax was 1%; for the first home, above 90 square meters, deed tax was 1.5%; for the second home, below 90 square meters, deed tax was 1%; for the second home, above 90 square meters, deed tax was 2%; in Beijing, Shanghai, Shenzhen, and Guangzhou, deed tax for the second home was 3%. The adjustment to the tax policy now raises the area standard eligible for a 1% low tax rate from 90 square meters to 140 square meters, and specifies that the four cities of Beijing, Shanghai, Guangzhou, and Shenzhen can apply the same preferential deed tax policy for a household's second home as other regions. After the adjustment, nationwide, individuals purchasing their only home or a second home as long as the area does not exceed 140 square meters will pay deed tax at a uniform rate of 1%. Zhang Dawei, chief analyst at Zhongyuan Real Estate, explained that with the deed tax adjustment, there is no impact on buyers of first homes below 90 square meters or those buying homes larger than 140 square meters. Buyers of first homes between 90-140 square meters can save 0.5% on deed tax, while buyers of second homes larger than 140 square meters can save 1%, and buyers of homes within 140 square meters can save 2% on deed tax. Among them, buyers of second homes in first-tier cities benefit the most. Previously, deed tax for second homes in all four first-tier cities was charged at 3%. The new policy will change this to 1% for homes within 140 square meters and 2% for homes above 140 square meters, with buyers benefiting from a maximum of 2% tax reduction. For example, a buyer of a second home with a total price of 5 million yuan, who previously had to pay 3% deed tax amounting to 150,000 yuan, will now only pay 50,000 yuan, resulting in a tax saving of 100,000 yuan. "This policy will further reduce the cost of home ownership for buyers, benefiting both essential and improvement housing demands. Especially for improvement housing demands, the tax incentives for buyers in first-tier cities are particularly significant," said Chen Wenjing. Zhang Dawei also believes that the adjustment of this tax policy primarily affects first-tier cities. Previously, deed tax and value-added tax had already been reduced in most cities, with some cities even subsidizing all deed taxes for buyers. Optimizing value-added tax policies in first-tier cities significantly reduces the transaction costs for non-primary residences The impact of value-added tax on the non-primary residential market in first-tier cities is one of the most anticipated measures. The latest policy clarifies that in Beijing, Shanghai, Guangzhou, and Shenzhen, after canceling the standard for both ordinary and non-ordinary residences and applying the unified individual sales housing value-added tax policy as in other regions nationwide, individuals in these cities who sell a residence they have owned for more than 2 years (including 2 years) will be exempt from paying value-added tax. Reducing the value-added tax in first-tier cities, this policy is a complementary measure to the cancellation of the standard for ordinary residences. Chen Wenjing said, "This policy significantly reduces the value-added tax in first-tier cities, further lowering the cost of home ownership for buyers and accelerating market recovery in first-tier cities." By canceling the standard for non-ordinary residences and in conjunction with the latest tax policies, a large number of buyers who have owned their homes for over 2 years in first-tier cities will save on taxes. According to calculations by Zhongzhi Institute, for example in Beijing, before the policy optimization, if a non-primary residence is sold after 2 years and the current price is 5 million yuan with an original purchase price of 2 million yuan, the buyer should pay a value-added tax of (500-200)/1.05*5%, which is 14.3 million yuan. After the policy optimization, the proceeds from the sale of a non-primary residence owned for over 2 years can be exempt from the value-added tax, saving all the previously applicable value-added tax. "By canceling the standard for ordinary and non-ordinary residences, this policy aims to encourage consumption, especially encouraging residents who already own homes to upgrade their living conditions and exchange homes. In the future, the tax policies for non-ordinary residences will align with those of ordinary residences, providing strong support for consumption of large-sized, high-end upgrading residences," stated Zhang Dawei. Lowering the prepayment amount for land value-added tax helps indirectly improve the cash flow of real estate companies Regarding land value-added tax, this policy reduces the lower limit of the prepayment rate for land value-added tax in various regions and lowers the prepayment amount. For cities that have canceled the standard for ordinary and non-ordinary residences, according to the Interim Regulations of the People's Republic of China on Land Value-added Tax, for taxpayers who build and sell standard ordinary residences and the added value does not exceed 20% of the deducted project amount, the land value-added tax will continue to be exempt. Also, the lower limit of the prepayment rate for land value-added tax in various regions will be reduced uniformly by 0.5 percentage points. Regions can adjust the actual prepayment rate based on local conditions. "As the real estate market continues to adjust, in recent years, the actual tax rates for land value-added tax for many real estate projects have significantly reduced, and many companies are in a situation of overpayment. If this excess amount cannot be refunded promptly, it will increase the financial pressure on companies," they further elaborated."This time, the minimum pre-tax rate for land value-added tax in various regions will be uniformly reduced by 0.5 percentage points, which is beneficial for reducing the prepayment of land value-added tax by enterprises, relieving the financial pressure on enterprises, and will also bring positive impacts on stabilizing business expectations," Chen Wenjing said.Many analysts believe that this move will indirectly improve the cash flow of real estate companies. "In terms of land value-added tax, the current room for reduction is not large. Currently, this reduction is mainly reflected in the decrease in pre-collection, which will play a certain role in reducing the cash flow pressure of real estate companies. The exemption of 20% of the deduction amount from the value-added amount is applicable to non-residential properties, which can reduce the development costs of real estate companies and benefit all types of real estate companies, especially those with a large presence in first and second-tier cities. Companies with a high proportion of non-residential properties will benefit even more." said Zhang Bo, director of the 58 Anjuke Research Institute. This article is from "Cailianshe" and translated by GMTEight. Editor: Liu Xuan.