For China's property sector, the tax argument is a red flag.

 

A tangled debate about an obscure tax regulation could really hint to one of the most serious risks to Chinese property developers, the largest of which are normally listed on the Hong Kong stock exchange, implying that last year's share losses could worsen. flats for sale in qatar

China Central Television has broadcast two reports criticizing property developers for failing to pay millions of dollars in land appreciation taxes. Because much of the media is censored by the Communist Party, China watchers believe the reports are unlikely to have come so close together without some kind of policy effort to put more pressure on developers at a time when home prices are still rising.

China Vanke, the country's largest property developer, was the focus of one exposé, with a television report stating the corporation had failed to pay over 4 billion yuan ($660 million) by the end of 2012. The allegations have been refuted.

Between 2005 and 2012, the broadcaster claims that 45 enterprises failed to pay at least 3.8 trillion yuan ($630 billion) in land taxes. The claims have been contested by companies such as Gemdale Corp. and Beijing Capital Development Co. BBMG Corp. and Beijing Vantone Real Estate Co., both mentioned in the original report, declared in stock exchange filings that they had done nothing illegal.

According to the research, the companies that owe the most tax are Agile Property (6.5 billion yuan in unpaid taxes), Soho China (5.0 billion yuan), China Vanke (4.6 billion yuan), and R&F Properties (4.6 billion yuan).

CCTV doesn't always get the mark; for example, a report criticizing Starbucks for selling coffee at greater prices in China than in countries like the United Kingdom was widely mocked. Many CCTV personnel reportedly questioned the appropriateness of airing the story but kept quiet because the firm operates on a rigorously top-down power structure, as is usual in most of Asia.

These reports, which are based on the estimates of Li Jinsong, a Beijing-based lawyer with the Beijing Yitong law company, appear to be off the mark as well. Analysts have noted that there is sometimes a lag between the completion of a project and the payment of the land tax, with local governments frequently altering the payment schedule to attract developers to purchase more land.

According to the State Administration of Taxes, the calculation of such high amounts of unpaid taxes appears to be based on a "misunderstanding and misreading" of tax rules.

However, the hostile attitude toward property developers certainly reflects a willingness among China's senior authorities to take on an industry that many Chinese citizens blame for driving up housing prices to unaffordable levels.

With a long-awaited property tax on homeowners in the works, the attacks are expected to signal a harder approach to property policy in the coming year. Many developers' excellent sales in 2013 are only likely to strengthen their determination. Last year, home sales increased by 30%, but average share prices fell by 13%.

Last October, Nomura analyst Alan Jin downgraded the entire Chinese property industry, and he continues to do so. He believes that the Tier 1 cities of Beijing, Shanghai, Guangzhou, and Shenzhen, in particular, are at risk of stricter rules. Second-tier cities such as Nanchang, Kunming, Hefei, and Xuzhou, on the other hand, are experiencing rapid growth in sales. As a result, he prefers developers like Country Garden and Evergrande Real Estate, who have a wider reach.

The Land Appreciation Tax, which ranges from 30 to 60 percent, was enacted in 1994 to recompense developers for real land purchased at low prices from the state.