Slowing housing market hits local govt revenues

Tax revenue from the real estate sector in April showed negative growth for the first time this year, an unsurprising result along with China's cooling property sector, according to data from China's Ministry of Finance (MOF) released on Monday.

Beside worries over slipping housing sales' negative impact on the economy, the shrinking tax revenues pose even greater threat to local governments, which have increasingly relied upon land sales and related taxes.

Business tax from the property sector amounted to 44.3 billion yuan ($7.09 billion) in April, down 4.2 percent year-on-year and corporate income tax of property firms was 24.8 billion yuan, down 3.1 percent compared with the same period in 2013.

In comparison, business tax and corporate income tax from the property sector saw a year-on-year increase of 33.6 percent and 25.1 percent in 2013. The growth rate eased to 10.3 percent and 11.7 percent in the first quarter.

Tax revenue from the property sector contributed to nearly 30 percent of local government income in 2013, according to a report from Shanghai-based E-house China R&D Institute in February.

"Contraction in housing transactions is a major reason behind the drop in tax income from the property sector," Liu Yuan, a senior research manager at Centaline China Real Estate, told the Global Times.

In April, nearly half of the 100 cities monitored by the China Index Academy reported negative month-on-month growth, according to data released on May 1.

The cooling in the sector is obvious and the trend may continue for a period of time, according to Chen Guoqiang, deputy head of the China Real Estate Society.

Developers are currently facing great capital pressure. Shenzhen-based Guang Real Estate Group Co, once listed as one of the top 100 developers in China, admitted that the company has been hit by a capital crunch and is open to takeover offers, media reports said on Monday.

In a research note sent to the Global Times on May 2, Nomura Securities wrote that China's property sector has "passed a turning point in the first quarter and will weaken through the rest of 2014."

"We maintain our view that the property sector is China's top economic risk," said the report.

Tian Yun, an economist at the China Society of Macroeconomics under the National Development and Reform Commission, noted that the weakening property sector will directly eat into the income of local governments, which greatly rely on land sales for income.

Five cities, including Nanning, Hangzhou and Tianjin, have loosened property purchasing restrictions in the past month by offering differentiated policies or lower down payments, in order to combat the slowdown in the sector.

Experts noted it is not very likely the central government will roll out any major policies to aid the property sector. "The cooling does not necessarily mean that the sector will see an overall meltdown," Liu noted.

Tian said that China will still manage to report fiscal revenue growth higher than 7.5 percent this year - the same level as the target GDP growth. Total fiscal revenue in China reached 4.75 trillion yuan in the first four months, up 9.3 percent year-on-year, the MOF said Monday.