Cities across Asia, baring those in India, are concerned about spiralling property prices and the housing problems it is causing. Early this year, when housing prices doubled, Singapore added measures to curb speculative buying - Singaporeans have to pay additional tax when they buy their second homes. Three years ago, the government modified loan schemes for select housing projects and asked foreigners and companies buying properties to pay additional taxes. (Read Bloomberg report here)
Following criticism that the State has not reigned in property prices that have left many house poor, the Chinese government recently announced some quick fix measures. It has directed local governments to strictly enforce a 20 percent capital gains tax and impose higher down payments for second-home buyers. Beijing, Shanghai, and Chongqing have imposed these measures. Cities such as Guangzhou and Shenzhen would also follow. (Read Reuters report here).
What do these measures hold for India?
Indian cities have witnessed impressive growth but they face questions of equity and inclusiveness. Driven by speculation and supported by rapid increase in wealth, steep property prices have turned housing unaffordable to many. Even compact apartments cost more than a crore of rupees within city limits. Middle and lower income groups have to move to far away suburbs. And many more are without any place to rent or own.
On the other hand, 9.43 million houses are lying vacant - bought by investors and kept unused. How to bring these houses to use them and prevent more speculative buying is a long overdue question?
If increasing the supply of rental housing is one of the ways to address the housing problem, then measures to curb hoarding of properties are necessary. There is no reason why second and third homes should enjoy lower tax rates, particularly when they are bought and sold frequently. An effective way to enhance rental-housing stock is by delaying resale. Enhanced capital gains tax could do just that.
Housing polices and plans only believe in the invisible hand of planning to set things right. They have so far spoken a reluctant and hesitant language. Incentives would work they argue – increase FSI, reduce stamp duty, facilitate easy transaction and so on. But neither simple enhancement of capital gains or differential taxes proportionate to the number of houses owned is under consideration. It is time try some direct and firm measures.