China’s national legislature approved a property tax pilot Saturday. The move is intended to “advance the stable and healthy development of the property sector,” said the Standing Committee of the National People’s Congress in a statement Saturday.

The pilot will be a step toward national property taxes. Until now, real estate has been taxed only as part of an experiment in two cities, Shanghai and Chongqing. China’s central government has sought to discourage speculation on houses for years, warning of economic risks as well as skyrocketing prices that put houses in major cities out of reach for many middle-class households.

According to the National Bureau of Statistics, the average price of residential properties in the country hit a record high of 11,030 yuan ($1,728) per square meter at the start of 2021. In the “tier-one” cities of Beijing, Shanghai, Guangzhou, and Shenzhen, China Evergrande Group estimated that prices quadrupled between 2009 and 2019, reaching nearly 54,000 yuan per square meter.

The tax will be limited to a group of pilot cities, and apply to both residential and non-residential properties but not legally-owned rural property or residences, according to the announcement made by the top legislature. Most details of the tax, including rates, will be set later by the State Council, China’s Cabinet, and local governments.

“Cities that will see their property prices increase year-on-year by over 5% this year will possibly get included in this plan,” said Lu Wenxi, chief analyst at Shanghai Centaline Property Agency.

The pilot scheme will last for five years after the State Council releases the measures.

It’s not clear if ordinary homeowners will be taxed. Previous trial measures in Shanghai and Chongqing have targeted the rich and owners of multiple homes. Shanghai collects property taxes from homeowners with second properties at an annual rate of 0.4% and 0.6% of the property price, depending on the size of the property, while Chongqing imposes taxes of 0.5% to 1.2% on villas and luxury apartments.

Lu said the two cities have continued to see property prices soar. “That’s because the taxes imposed are too moderate and they’re not impacting many people,” he told Sixth Tone. “The experience of the two cities will serve as references when new rules are made. The key questions are who needs to pay the tax and what rates they will pay.”

The tax will make it more expensive for speculators to hold onto empty apartments, Lu said. “If this tax is imposed on all property owners, even those who own only one apartment… it will be a different story — it will have a much bigger impact than the previous pilots,” he added.

The announcement of the pilot comes amid a push for wealth redistribution as the country pursues “common prosperity.” Huang Zhonghua, a professor specializing in real estate studies at East China Normal University, says a property tax could do more than income taxes to address inequality.

“The tax has the potential to address the wealth gap,” Huang told Sixth Tone in an earlier interview. “The wealth gap resulting from disparate property ownership can be much wider than gaps in income. Imposing property tax is a good approach to work towards common prosperity.”

Editor: David Cohen.

(Header image: People Visual)