If China's President Xi Jinping says he wants to "vigorously and steadily drive forward real estate taxation" so that there will soon be "prosperity for all" in the People's Republic, then he could target people like Pepper Wen.
Hendrik Ankenbrand
Business correspondent for China based in Shanghai.
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Life has been kind to 28-year-old Wen, as far as one can judge from the outside.
Her own parents, who live in Nanjing, bring home the equivalent of 70,000 euros annually from their salaried jobs, which makes the daughter of the upper middle class.
Since meeting her future husband in a Shanghai nightclub, Pepper has even been rich.
The in-laws, entrepreneurs with their own factory, gave the couple a villa with 400 square meters of living space in the high-tech district of Zhangjiang, Shanghai's Silicon Valley in the Pudong district.
China should become the same again
The palace in the Spanish country house style could also be in Beverly Hills, except that the pool is not private and has to be shared with the other residents in the closely guarded residential complex. Nevertheless, the value of the house has doubled over the past ten years. At that time, the in-laws paid 40 million yuan, 5 million euros. Today the property is worth almost 11 million euros.
So far, taxes have only been incurred once for the purchase, 4 percent of the purchase price (for apartments with an area of less than 120 square meters, the rate is half) plus transaction fees. No longer. Nine out of ten households own an apartment. Also because there is no property tax like in Germany. But that should change. On Saturday, Beijing announced a reform that is so massive, has so many enemies and such an uncertain outcome that most observers have thought it would never come: property taxation.
The fact that housing prices are higher than in New York and London and that average household incomes exceed by a factor of 50 is also due to the tax system, especially in China's popular megacities on the east coast. This was reformed in 1994 in favor of the central government so that, according to the Beijing investment bank CICC, for every 100 yuan that a car manufacturer and its dealers pay in taxes, just 17 yuan ends up in the coffers of the provinces and municipalities. Because the local governments still have to keep the economy running with expensive infrastructure buildings and loss-making state-owned companies, the sale of land to real estate developers has become by far their most important source of income - and the reason whythat the housing market is overheating and the dream of owning a wall has often become unaffordable for the young generation in the country.
The real estate tax is intended to free the country from its dependence on real estate, which has proven to be toxic not only since the crisis surrounding the developer Evergrande, who is in the case. As always, when China's leadership intends to overturn the system properly, it will first try out taxation in a few selected cities. The fact that the metropolis of Shanghai, with a population of 24 million, will be among them is certain, and the 32 million-strong metropolitan region of Chongqing in the west of the country should also be part of the test. The other cities are not yet known. Hangzhou could be part of it, the rich city on the east coast in which the internet giant Alibaba has its headquarters and which is located in the province of Zhejiang, which is to serve as a model region for the Communist Party's plan,to make the extremely unequal China more equal again.
Heavy burden on speculators
How high the tax rate will be is also not yet known.
The estimates range from 0.2 to 1.2 percent.
If it ended up being around 0.7 percent, and if it were calculated based on the current market value of the house without any deductions, that would mean for Pepper Wen that she and her future husband would have to transfer 560,000 yuan to the treasury in the year.
That is the equivalent of 76,000 euros.
This sum is so high that the elite have successfully avoided the tax over the past decades, from which the cadres of the Communist Party themselves benefited first and foremost, as they own as many apartments as 90 percent of all households in the country.