BEIJING -- Stock prices of major Chinese property developers slumped up to 10% on Friday after a senior official unexpectedly revived talk of prioritizing a proposed property tax in this year's legislative work.
Li Zhanshu, chairman of the National People's Congress's standing committee, said the real estate tax was one of 18 items identified by the Central Committee of the Communist Party as a priority. "This year, we must move forward with formulating and revising urgently needed laws for deepening market-based reforms," Li said.
China's top five property developers all saw their stock prices tumble after Chinese media singled out the tax in reports on Li's speech around 3 p.m. local time.
Shares of Sunac China Holdings, the country's fourth largest developer by sales in 2018, fell 10.89% at the Hong Kong Stock Exchange. The top three -- Country Garden Holdings, China Vanke Co and China Evergrande Group -- dropped 5.18%, 4.85% and 3.97% respectively. Poly Property Group, the fifth largest, dipped 4.23%.
By comparison, Hong Kong's benchmark Hang Seng Index declined 1.91% on Friday.
The mention of the proposed tax shook investors as the sector has seen a substantial slowdown over the past year in line with China's decelerating economy.
Local governments in China depend heavily on proceeds from the sale of land for their revenues, and a recurrent property tax would boost their finances. Authorities are now stretched between the slowing real estate market and demands for greater spending, and edicts from Beijing to reduce business taxes and boost investments.
Many analysts believe a real estate tax would help prompt investors, who now commonly leave investment properties vacant, to lease them out, relieving pressure on urban housing costs.
A prerequisite for administering a property tax would be a clear registry of property ownership. Vested interests who prefer to keep their holdings obscured have slowed the development of the tax.
While property taxes are common in many other countries, China currently only applies such levies in a few pilot cities.