By Dominique Fong

BEIJING--This year it seemed China was finally going to make headway on an idea familiar to U.S. homeowners: a property tax.

For many Chinese families, owning a home is one of few options to build wealth, driving buying frenzies as people rush to purchase before prices soar. Imposing costs on homeowners through a property tax is seen as a way to tame such speculation, while also helping fund local governments.

Lu Kehua, China's vice housing minister, last month said the government needed to "speed up" a property-tax law. Economists and academics have long recommended the move.

Yet the annual National People's Congress came and went this month with no discussion of the topic. An NPC spokeswoman said a property tax wouldn't be on the legislative agenda for the rest of the year.

The momentum of China's property market sped up in February after a brief slowdown, with home prices rising 0.3% from the month before and up 10.6% from a year earlier, official data released Saturday showed.

The Chinese government is wary of any move that could rock the economy, especially with a major Communist Party leadership transition looming this year.

Resistance to a tax has come from the wealthy and local government officials. Part of the fear is it could force disclosures of officials' property holdings and raise questions about how they were acquired. That is a particular worry during a continuing antigraft campaign, though some officials may have become more used to such disclosures, Rosealea Yao, an analyst at Gavekal Dragonomics, said in a recent report.

Yilin Hou, a Syracuse University professor who has extensively studied the possibility of a property tax in China, says it should introduce one--"the earlier the better"--to stabilize the real-estate roller coaster of recent years. But he acknowledges the political challenge.

"The rich, the powerful and other interest groups...opposed the idea because they own better and large homes, and will have to pay more tax," he said.

China is unusual among the world's largest economies in not having a yearly tax on homes. Beijing never instituted one for fear of slowing the stampede as it opened the property market in the late 1990s. A 30% surge in housing prices in some cities last year prompted new calls for a tax to discourage the purchase of apartments solely for investment.

Three years ago, Yi Zi, a 45-year-old logistics worker, bought a one-bedroom apartment in the Beijing suburb of Yizhuang. He never lived in it, leaving it empty--but with no mortgage and no property tax, he had no carrying costs. Late last year, he sold it for 1.5 million yuan ($217,050), banking a 25% return.

A property tax wouldn't dissuade him from buying another apartment as "there's not much else to invest in," he said. But if faced with a tax, he said he would likely have rented the property out.

The last time the issue was seriously discussed was in 2011, when China launched two property-tax experiments.

Chongqing, a sprawling megacity straddling the Yangtze River, rolled out a levy of up to 1.2% on luxury homes. Enforcement quickly became an issue: Some real-estate agents and homeowners say it remains unclear who is supposed to pay the tax.

One Chongqing resident, who bought her 365-square-meter (3,929-square-foot) villa about three years ago, says she never received a bill. "We know we have to pay, but they haven't told us how to pay or warned us of a fine," she said.

Another resident, the owner of a manufacturing company, bought a 410-square-meter (4,413-square-foot) villa with a river view about the same time. He said for two of the past three years he paid a 1% tax but the government hasn't forced him to pay for the third.

The Chongqing pilot was too small to make a meaningful difference, says Mr. Hou, the Syracuse University professor. City officials "designed it in that way, to stay away from any social unrest," he said.

The other pilot, in Shanghai, applied mainly to second homes, with an annual tax of up to 0.6% of their estimated value. It has had no noticeable effect: Shanghai housing prices rose more than 30% last year.

The broader concern about instituting a tax is the effect on home prices.

Ms. Yao, the Gavekal Dragonomics analyst, says a property tax wouldn't see house prices instantly plummet. But over time, a 0.5% property tax could lower the value of a home by 15%-20% as potential homeowners factor in the cumulative cost.

Zhou Yanwen andher husband are among the many Chinese balking at adding a cost. "We also have mortgages to pay each month," said Ms. Zhou, a 25-year-old researcher in Shanghai. She estimates a property tax of 0.5% a year could raise the monthly costs for her apartment by 20%.

Mr. Hou, meanwhile, keeps pitching his recommendations for a property tax to central and local government officials, including adopting the lowest possible tax rate of 0.1%-0.5%. He said in recent interactions, officials have seemed "very open."

Lilian Lin and

Junya Qian

contributed to this article.

Write to Dominique Fong at Dominique.Fong@wsj.com

(END) Dow Jones Newswires

March 19, 2017 07:15 ET (11:15 GMT)

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