Controlling effects of second-hand housing taxation policies on Wuhan housing market

Since the housing system reform in 1983, China’s housing system has been transformed to the market-oriented supply system. There are two component of the housing system reform, including the improvement of housing market and more affordable housing to everyone. In the aspect about more affordable housing, although since the housing system reform till nowadays, the average housing area is greatly improved, the increasingly expensive housing price prevent those low-middle income people from the housing in the market. And in the aspect about housing market system, both the primary housing market and secondary housing market have been established. The primary housing market is where the transaction of newly built commercial housing is from the developers to the individual buyers. The secondary housing market is where the second-hand housing transfers from one individual seller to another individual buyer. Since the primary housing market and secondary housing market affect each other greatly, the government adjusted the capital gains tax for second-hand housing deals to control the primary housing price by reducing the investment demand in primary housing market. Based on this background, this research aims to explain the effect of capital gains tax for second-hand housing deals on primary housing prices. This research just focus on the largest city in central China, Wuhan, which has the researching value. This research is conducted in two aspects and two period. The first aspect is the relationship between the primary housing market and the secondary housing market after the adjustment of capital gains tax in short and long period. The second aspect is to what degree, the capital gains tax can affect the primary housing market price in short and long period. The main finding in this research is that the 20 percent capital gains tax for secondary housing deals on primary housing price are different in short period and long period. In short period, the capital gains tax can stabilize the primary housing price via reducing the primary housing market demand which is called capitalization effect. However in long period, the effect of capital gains tax on primary housing price is insignificant. The secondary housing price affects the primary housing price most significantly. This research also proposes some policy recommendations. In policy aspect, more controlling policies on housing market are suggested. Besides, other macro and micro factors should also be paid more attention.