The Ministry of Finance releases a major move to stabilize the property market: special bonds can be used to purchase existing homes, optimizing related tax policies

Following the People's Bank of China and other three financial departments, the Ministry of Finance has also released a major move favorable to stabilizing the real estate market.

On October 12, the State Council Information Office held a press conference to introduce the situation regarding "increasing the countercyclical adjustment of fiscal policies and promoting high-quality economic development." It was pointed out that "a series of targeted incremental policy measures will be introduced in the near future," with four major aspects clarified. Measures for the real estate sector are one of the important areas, reflecting the significance of the real estate industry.

Regarding the real estate sector, the Ministry of Finance stated that it will "superimpose the use of local government special bonds, special funds, tax policies, and other tools to support the stabilization of the real estate market," and "will adhere to strict control over incremental growth, optimize existing stock, and enhance quality, actively researching and introducing policy measures conducive to the stable development of the real estate sector."

Specifically, the Ministry of Finance has outlined the future direction of fiscal policies for the real estate sector from three aspects, namely allowing special bonds to be used for land reserves, allowing special bonds to purchase existing housing stock, and optimizing and improving related tax policies.

Several analysts believe that the subsequent work of local governments in purchasing existing commercial housing will accelerate, and policy support will help in bulk and rapid clearance of housing inventory. This will not only mitigate the risks and pressures of existing commercial housing inventory but also expedite the work of local governments in securing housing sources. At the same time, the Ministry of Finance is actively studying and clarifying the value-added tax and land value-added tax policies related to ordinary and non-ordinary residential properties, with the industry expecting potential tax reduction measures in the real estate sector in the future.

"The focus of real estate work in the fourth quarter of this year is to promote the recovery of the housing transaction market. With the revitalization of land and existing projects, there will be further room for optimization of the supply-demand relationship," said Yan Yuejin, deputy director of the E-House Research Institute.

First mention of "allowing special bonds to purchase existing housing stock"

The speed of local "acquisition and storage" is expected to accelerate.

The Ministry of Finance has stated this time that it supports local governments in purchasing existing housing stock to optimize the supply of affordable housing. Firstly, making good use of special bonds to purchase existing commercial housing for use as affordable housing in various regions. Secondly, continuing to make good use of subsidies for affordable housing projects to support local governments in raising housing sources through the digestion of existing housing stock.

"This time, the Ministry of Finance has clearly stated that it will make good use of special bonds to purchase existing commercial housing for use as affordable housing in various regions, which means that local government special bonds are expanding," pointed out a real estate industry analyst.

According to Yan Yuejin, historically, special bonds generally do not "involve housing." In the past, "housing involvement" mainly supported shantytown renovation and land reserves, rarely intervening in more detailed areas of the real estate sector. However, this time the Ministry of Finance has explicitly supported the digestion of housing inventory by real estate enterprises, marking the first time.

He further stated that existing residential land projects include projects that have not started, projects that have started but not been sold, and projects that have started and been sold. According to the current funding direction, in the future, local government special bonds will focus on projects in residential land that have not started and projects that have started but not been sold, continuously digesting the land and housing assets under real estate enterprises "Acquisition of existing commercial housing for affordable housing funding sources, previously more focused on the People's Bank of China's RMB 300 billion re-lending for affordable housing used for completed but unsold commercial housing. This time, the Ministry of Finance has clarified that local government special bonds can be used to acquire existing commercial housing, while also pointing out that affordable housing subsidies will also focus more on supporting the digestion of existing housing stock. With more funds entering the market, it is expected to increase the pace of clearing the inventory of completed but unsold commercial housing, further promoting the balance of supply and demand in the real estate market, which will have a positive effect on stabilizing market expectations." Chen Wenjing, Director of Policy Research at China Index Research Institute, said.

The above analysts stated that although the regulatory authorities currently encourage social capital to acquire inventory commercial housing, systematic advancement of this work requires implementation by local governments, while also linking it with affordable housing construction. It is expected that after local governments issue special bonds, their ability to acquire existing projects will significantly increase, helping to quickly and in large quantities resolve the inventory of housing stock and accelerate the comprehensive speed of affordable housing construction work.

Major Tax Cuts May Be Coming

The real estate market's tax policies are expected to be optimized.

The Ministry of Finance pointed out this time the timely optimization and improvement of relevant tax policies. Currently, efforts are being made to study and clarify the value-added tax and land value-added tax policies that are in line with the standards for ordinary residential and non-ordinary residential properties. Next, further research will be conducted to increase support, adjust and optimize relevant tax policies to promote the stable and healthy development of the real estate market.

"This mention of tax tools to support the stabilization and recovery of the real estate market basically indicates that, following a series of heavyweight policies by the People's Bank of China, a major tax cut in the real estate sector is likely to emerge." Yan Yuejin believes.

Li Yujia, Chief Researcher at the Housing Policy Research Center of the Guangdong Provincial Urban and Rural Planning Institute, also believes that tax policies will be a key focus in the future, and there may be measures to reduce or exempt taxes such as the deed tax, value-added tax, and personal income tax on second-hand property transactions.

"Currently, various regions are accelerating the implementation of policies related to the cancellation of ordinary residential standards. The difference in tax and fees between ordinary residential and non-ordinary residential properties mainly manifests in two aspects. On the one hand, the cancellation of ordinary residential standards helps reduce the value-added tax on residents' purchases of non-ordinary residential properties. After the cancellation of ordinary residential standards, details such as the tax rate for purchasing property and the exemption period still need to be clarified, and in this process, various relevant departments need to follow up in coordination." Chen Wenjing said.

On the other hand, she pointed out that regarding the land value-added tax levied on developers, according to the "Interim Regulations of the People's Republic of China on Land Value-added Tax," if the taxpayer constructs ordinary residential properties for sale and the incremental value does not exceed 20% of the deducted project amount, the land value-added tax is exempt. If an enterprise develops and constructs non-ordinary residential properties, the full amount of the incremental value is subject to land value-added tax calculation. After the cancellation of ordinary residential standards, adjustments to the relevant policies of the land value-added tax also need to be refined.

In addition, some analysts have pointed out that currently, the market is paying more attention to the deed tax, and it is not ruled out that there may be further optimization and adjustments in areas such as the deed tax in the future.

"Based on past experience, reducing taxes and fees will have a significant 'cost reduction' effect, which is conducive to releasing market demand." Li Yujia stated.

"Overall, there is still room for optimization in future tax policies to support the real estate sector. The market has certain expectations for optimizing deed tax policies, increasing the deduction of mortgage interest for personal income tax, and adjusting the prepayment tax rates for enterprise real estate-related taxes and fees." Allowing Special Bonds to be Used for Land Reserves

Another highlight of this policy is allowing special bonds to be used for land reserves.

The Ministry of Finance explained at the press conference that this move is mainly considering the relatively large amount of idle undeveloped land in various regions currently. It supports local governments to use special bonds to reclaim idle stock land that meets the conditions. Areas in need can also use it for new land reserve projects.

It is reported that the Ministry of Natural Resources has already issued a document clarifying that for reclaimed land used for affordable housing, it can be supported by funds such as local government special bonds. The central bank also stated that it will further clarify the policy of providing financial support for enterprises with conditions to market-oriented purchase land from real estate companies, and provide re-lending support when necessary.

"The Ministry of Finance has further clarified allowing special bonds to be used for land reserves, supporting local governments to use special bonds for the acquisition of stock land. This will help accelerate the pace of reclaiming idle stock land, promote destocking in the market, and drive the balance of supply and demand in the real estate market," said Chen Wenjing.

In the view of Li Yujia, allowing special bonds to be used to reclaim idle land for activation combines destocking and activating stock, achieving a dual effect of stabilizing the real estate market and stabilizing the land market.

"It is worth noting that this meeting has clarified that special bonds can also be used for new land reserves, which is a major change. In the past, land reserves mainly relied on local state-owned enterprises selling land or using land as collateral for financing. Now, local governments can issue special bonds, which greatly breaks through the current constraints on land activation and reserves due to difficulties in selling land and heavy debt of state-owned enterprises," Li Yujia added.

Chen Wenjing stated that overall, the supporting funds for activating idle stock land are expected to accelerate follow-up implementation, supporting reasonable land withdrawal and exchange by real estate companies. This will bring substantial benefits to local governments, real estate companies, and others.

Analysts pointed out that the Ministry of Finance's speech and policy clarity this time will implement systematic work in "strictly controlling increments, optimizing stock, and improving quality." Based on this, the market expects that the work of relevant departments in the second half of this year may focus on several key areas.

"In terms of controlling new supply appropriately, increasing stock storage and transformation, especially promoting destocking through local government special bonds, and taking multiple measures to better assist in the improvement of the quality of development in the real estate sector," said Yan Yuejin.

In fact, the Central Political Bureau meeting on September 26 set the tone of "promoting the stabilization of the real estate market," releasing the strongest "stabilizing real estate" signal so far. Subsequently, at the end of September, first-tier cities successively introduced new real estate policies, greatly boosting market confidence and driving a significant increase in real estate sales during the National Day holiday.

After the introduction of measures to stabilize the real estate market in this fiscal policy, Chen Wenjing believes that the "comprehensive" package of real estate policies is expected to accelerate implementation. It may revolve around implementing stock policies well, accelerating the introduction of incremental policies, optimizing adjustments to policies for unsold commercial housing built by local state-owned enterprises, to remove barriers to stock acquisition; increase the intensity of lending to the "white list"; at the same time, there are expectations for adjustments in policies such as further optimizing restrictive policies in core cities, reducing transaction taxes and lowering transaction commissions