China has made steep cuts to property taxes in another round of measures designed to shore up the country’s beleaguered real estate market.

First-time home buyers across the country will now be charged a deed tax of only 1% when purchasing a property with a floor space of up to 140 square meters, according to a Wednesday guideline jointly issued by several central government departments. The same rate will also be applied to families purchasing a second apartment with a floor space of up to 140 square meters.

Previously, first-time buyers in most Chinese cities had to pay a 1.5% deed tax when buying a property measuring more than 90 square meters. Anyone purchasing a second home in a first-tier city such as Beijing and Shanghai have to pay a 3% deed tax.

That means people purchasing a second home for 1 million yuan ($140,000) within the eligible size range will now have to pay only 10,000 yuan in deed tax, compared with 30,000 yuan before.

First- and second-time home buyers will be taxed 1.5% and 2%, respectively, when buying a property with a floor space of over 140 square meters, according to the guideline.

Meanwhile, homeowners will now be exempt from VAT when selling any property that they have owned for more than two years, including homes previously classified as “non-ordinary dwellings.”

Previously, sales of properties deemed to be “non-ordinary dwellings” — such as mansions or luxury apartments — were subject to 5% VAT, which often cost homeowners tens or even hundreds of thousands of yuan.

The tax cuts, which are due to come into force in December, are the latest in a series of moves by the Chinese government to shore up the real estate market.

Sales of new homes fell 24% year over year during the first nine months of this year, according to government data. Real estate investment was down 10.1% compared with the same period last year.

China’s leaders listed reviving the property market among their top policy goals during a meeting of the Communist Party’s Central Committee in July.

Two months later, the country’s central bank cut mortgage rates and lowered down payment requirements for purchases of second properties.

The newly announced tax cuts are likely to provide a direct stimulus to sales of medium- to large-sized homes, which will help households who want to upgrade their living conditions, said Yan Yuejin, research director at the E-House Real Estate Research Institute.

The changes will also provide a boost to the real estate markets of major cities like Shanghai, where homes were subject to higher taxes, as well as help developers clear their inventories, Yan added.

Liu Xinyuan, a real estate agent in Shanghai, said the changes would lower buyers’ costs and facilitate transactions on the secondary market.

“On the supply side, we expect more pre-owned properties to come onto the market. On the demand side, this should incentivize more buyers to enter the market,” he said, adding that he was expecting a barrage of inquiries from potential clients over the following days.

According to Liu, the tax cuts are already having a tangible impact. One of his clients recently made an offer of 8.5 million yuan for a property listed at 9.3 million yuan, but after yesterday’s policy announcement, the seller decided to stick to their original asking price. The buyer has since upped their offer to over 9 million yuan, Liu said.

Additional reporting: Li Miaoran.

(Header image: VCG)