China: Property tax to impact steel sector in the long run

Beijing's intention to introduce property tax in some pioneer cities after years of mulling, may not show any notable impact on the domestic steel demand immediately as details have remained unclear, but it will be definite and lasting in the long run, according to Chinese steel market sources, confirming that they have been closely monitoring the development.

On October 23, Beijing announced the plan, with the property tax applying to all sorts of real estate properties in the trial cities other than the landed properties owned by the citizens in the rural areas, and the trial period will be five years or longer, and related laws and regulations will be issued afterwards based on the actual results in a timely manner, according to a Xinhua News report on the day.

"It is still another five years at least before the nationwide imposition, but this is sending a clear signal to the property market to cool down the frenzy in investment from the developers and investors, " a Shanghai-based economist commented.

Together with the guidelines already in place in containing the domestic property developers' enthusiasm from borrowing too much from banks, the property tax will be more targeting at those citizens' property purchases for speculative gains, and this will be curtailing the zeal from both the ends, according to him.

"These will effectively bring the real estate market back to a healthy track," he added, thinking it crucial now for China to mitigate the risks in the property sector when other foreign countries are considering tightening monetary policies.

The announcement shook the Chinese steel market even though no immediate impact has been detected, but construction including the property sector consumes about 50% of China's steel products annually, and this may reduce steel consumption sooner or later.

"A lot of the residential housings in China have been left empty, and the impending tax may trigger property sales by the owners that are unwilling to pay taxes, and with more supplies re-emerging in the market, the launches of new real estate project may be slowed and so will the demand for steel," a steel market insider from East China's Shandong shared his worries.

A Shanghai-based steel analyst agreed. "Property developers may reassess how many new projects to build and this will surely be directly reflected in steel demand," he said, adding, though, that, "the impact on newly-launched projects will not be sudden and significant, but gradual and more in the long run".

Besides, the blow will not be too hard, as by September, China's newly-launched property projects had already slowed, and "steel demand from China's property sector seems to have climaxed and plateaued," a second Shanghai-based analyst commented.

Over January-September, newly-launched properties including all kinds of properties fell 4.5% on year to 1.5 billion square meters, as reported, which was partly due to the waning enthusiasm among the developers with tighter capital flows and Beijing's reiteration that "housing is to live not to speculate on", Mysteel Global noted.

Written by Olivia Zhang, zhangwd@mysteel.com

This article has been published under an article exchange agreement between Mysteel Global and SteelMint.