China eases property taxes but avoids bold housing stimulus (property downturn drags on)

TL;DR summary:

China is extending a value-added tax (VAT) exemption on certain residential property sales, adding another incremental policy measure aimed at stabilising its long-running real estate downturn. While the move lowers transaction costs for homeowners, it underscores Beijing’s preference for targeted relief rather than more forceful intervention.

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China will extend a policy waiving value-added tax on selected home sales, as authorities continue to search for ways to ease the country’s persistent property slump without deploying more aggressive stimulus measures.

Under the policy, individuals selling residential properties they have owned for at least two years will remain exempt from paying VAT, according to a statement from the Ministry of Finance issued on Tuesday. The exemption will take effect from Friday, 2 January 2026. Homes sold within two years of purchase will continue to attract a VAT charge of 3%.

The extension marks a modest but symbolically important easing compared with previous rules in some major cities. In markets such as Shanghai, sellers of homes held for less than two years were previously subject to VAT rates as high as 5%. Many of China’s largest cities had already rolled out VAT exemptions in late 2024, but the latest move formalises and extends the policy at a national level.

The measure comes against the backdrop of a prolonged real estate crisis that has weighed heavily on economic growth, local government finances and household confidence. China’s once-dominant property sector has been hit by falling home sales, weak buyer sentiment and tightening developer liquidity, leading to the collapse or restructuring of several major firms, including China Evergrande Group. Even China Vanke Co, long viewed as one of the sector’s most resilient players, has come under mounting pressure amid rising debt concerns and declining home prices.

Official data showed that home prices in China recorded their steepest year-on-year decline in more than a year, underscoring the depth of the downturn. The property sector’s weakness continues to drag on consumer sentiment and investment, complicating Beijing’s efforts to stabilise growth as the economy slows.

Chinese leaders have pledged to increase policy support for the housing market following a key economic meeting this month. Measures under discussion include encouraging government purchases of existing housing stock, particularly for conversion into affordable housing. However, policymakers have so far stopped short of adopting the more forceful steps some economists argue are necessary, such as direct cash subsidies for homebuyers or large-scale government investment to clear excess inventory.

As a result, the VAT exemption extension is likely to be seen as another incremental step rather than a decisive turning point. While it reduces transaction costs and may help unlock some pent-up supply, analysts caution that restoring confidence in the housing market will require broader measures to address weak demand, developer balance sheets and expectations around falling prices.