Prospects of Substituting Local Land Finance Revenue with Property Tax in China

Despite decades of deliberation, residential property tax is yet to be levied at a national scale in China. Historically, despite being the primary beneficiary of the tax’s revenue, local governments were apathetic toward adoption because it contradicts their existing revenue generation model through land finance, or the sale of land-use rights to property developers. Recently, however, as the property market enters a persistent downturn, the credibility of land finance as a driver of revenue is in question. Furthermore, the central government has been signaling that collection of residential property tax might be imminent. This project provides timely analysis on the viability of property tax as a substitute revenue generation method for local governments in place of land finance. Using recent data scraped from Fang.com, the leading real estate marketplace in China, for one municipal district and computation done in R and Python, I establish that property tax seems to be a potential alternative. However, upon further analysis completed through the website visualizer and calculator built with the Google Maps API, I find that such a substitution would come at the high price tag of around 20 percent of the disposable income of local residents. Such a result explains the local government apathy toward the tax, both in the past and now that the property market has entered a persistent slump. The revenue from property tax would both require time to cultivate (and not as immediate as the existing, albeit weakened, land finance revenue) and would be politically difficult to collect due to potential public opposition. Thus, it is reasonable for local governments to avoid this reform. The result of this project can be viewed interactively through the website (https://csec.rence.la/).