Property tax reform plans hit Shanghai stocks

Shanghai stocks tumbled on Monday after China’s cabinet said it had approved a plan from the state planning agency to “gradually push forward reform” of the country’s property tax regime.

The statement provided no further detail but the cryptic reference was taken as a sign by investors that Beijing may further clamp down on the country’s booming real estate market, possibly by introducing an annual tax based on the value of housing.

A series of measures to cool the market in recent months, including higher down-payment and mortgage rates, has already contributed to a steep drop in housing sales volumes in many cities and hurt sentiment on the stock market.

The National Development and Reform Commission, the state planning agency whose real estate tax plan was approved by the State Council on Monday, refused to reveal any details of the new tax regime.

The Shanghai municipal government has also submitted its own property tax proposal to the government for approval, state media reported on Monday.

Elsewhere in Asia, stocks were mixed as investors cautiously hunted for bargains following a dismal month for the region’s equity markets.

In Tokyo, the Nikkei rose 0.1 per cent to 9,768.70, while in Seoul the Kospi advanced 1.1 per cent to 1,641.25. Hong Kong’s Hang Seng struggled in and out of positive territory before closing flat at 19,765.19.

The FTSE All World Asia Pacific index closed unchanged at 216.83, having fallen 10 per cent in May, its biggest monthly decline since the September 2008 Lehman chaos.

Markets were likely to rally this week after being “oversold” over the last month, said Dariusz Kowalczyk, chief investment strategist at SJS Markets in Hong Kong.

But he warned that risky assets such as equities were in for further falls over the course of the year as the G-3 economies – the US, the eurozone and Japan – slip into a double-dip recession.