Finance and Economics APP learned that Open Source Securities released a research report stating that this announcement by the three departments continues the relaxed orientation of real estate policies since the end of September, providing a specific explanation of improving the real estate tax system proposed at the Third Plenary Session of the Twentieth Central Committee, and financial and tax policies are accelerating the fulfillment of real estate market support. Increasing the deed tax preferential intensity in housing transactions, and unbundling the value-added tax standards for ordinary residential homes in first-tier cities, can reduce home purchase costs; the unified downward adjustment of the land value increment tax prepayment rate can alleviate the financial pressure on real estate enterprises. The announcement stabilizes market expectations from both home buyers and real estate enterprises, promoting the market to stabilize after the decline.

Event: Announcement by the three departments on tax policies related to promoting the steady and healthy development of the real estate market.

On November 13, 2024, the Ministry of Finance, the State Administration of Taxation, and the Ministry of Housing and Urban-Rural Development issued an announcement on tax policies related to promoting the steady and healthy development of the real estate market, specifying multiple tax preferential policies to support the development of the real estate market, including increasing the intensity of deed tax preferential treatment in housing transactions, actively supporting residents' rigid and improved housing demand; and lowering the lower limit of the land value increment tax prepayment rate to ease the financial difficulties of real estate enterprises. The new policy will be implemented from December 1, 2024.

The major viewpoints of Open source Securities are as follows:

Increase the intensity of deed tax preferential treatment in housing transactions, supporting residents' demand for improved housing.

On the deed tax side, this announcement adjusts the area threshold for enjoying deed tax preferences from 90 square meters to 140 square meters, while also adjusting down the deed tax for the second home in first-tier cities, at 1% (140 square meters and below) and 2% (above 140 square meters) respectively. The deed tax policy has a relatively wide coverage, which will further reduce the tax and fee costs of residents' home purchases, promote the release of demand for improved home purchases; at the same time, for first-tier cities, the deed tax preferences are greater, with the highest reduction reaching 2 percentage points.

First-tier cities will unbind the value-added tax on general residential properties, and the unified pre-tax deduction rate for land appreciation tax will be reduced by 0.5 percentage points.

On the value-added tax front, it is clarified to connect with and cancel the value-added tax standards for general residential and non-general residential properties in first-tier cities. Value-added tax is exempted for individuals selling purchased homes for 2 years or more. This policy mainly eliminates the 5% tax paid when selling non-general residential properties after two years, which is expected to further reduce the cost of home purchase in first-tier cities. Beijing and Shanghai have previously stated that they will implement the national requirements to timely cancel the standard for general residential properties, and it is expected that the policy of canceling the standard for general residential properties in first-tier cities will accelerate implementation.

On the land appreciation tax front, residential properties with a value-added amount not exceeding 20% of the deducted project amount will still be exempt from land appreciation tax; at the same time, the lower limit of the pre-deduction rate of land appreciation tax in various regions will be uniformly reduced by 0.5 percentage points. Local areas can also adjust the actual pre-deduction rate based on local conditions. For real estate enterprises that prepay land appreciation tax, this is beneficial in reducing cash flow pressure. After the adjustment, the pre-deduction rate in the eastern region is 1.5%, 1% in the central and northeastern regions, and 0.5% in the western region.

Investment advice

(1) High investment intensity, optimal layout areas, and market-oriented mechanisms with strong creditworthiness: Poly Developments and Holdings Group (600048.SH), Greentown China (03900), China Merchants Shekou Industrial Zone Holdings (001979.SZ), China Overseas (00688), Xiamen C&D Inc. (600153.SH), Yuexiu Property (00123), Hangzhou Binjiang Real Estate Group (002244.SZ), and C&D Intl Group (01908);

(2) A dual-drive of residential and commercial property, simultaneously benefiting from the real estate recovery and consumer promotion policies: Seazen Holdings (601155.SH), Longfor Group (00960);

(3) Continued growth in the scale and penetration rate of second-hand housing transactions, indicating a promising future for the after-service market in real estate: Ke Holdings-W (02423), 5i5j holding group (000560.SZ).

Risk warning: The implementation of policies may not meet expectations, and the availability of funds may not meet expectations.