People who sell homes less than five years after purchase must again pay a 5.55-percent business tax starting next year, the State Council, China's Cabinet, announced on Wednesday.

It is the State Council's latest attempt to curb speculation that has been widely blamed for soaring home prices across the country.

Wednesday's decision, made at an executive meeting chaired by Premier Wen Jiabao, finally ended market conjecture that the preferential policy introduced a year earlier to boost home sales might be extended after it expires on December 31.

In Shanghai, for example, the city government announced in October, 2008, that individuals would be exempt from the 5.55-percent business tax if they sold their homes two years after purchase instead of five.

"The policy again reflects the central government's crackdown on increasing speculation after the country's real estate market rebounded significantly since the second quarter of this year," said Xue Jianxiong, an analyst with E-House (China) Holdings Ltd.

"It's a good news from the long-term perspective."

However, Xue said that in the short term - three to six months - it might add pressure on the supply of existing housing as some home owners may choose to shelf sale plans until the five-year limit expires to avoid the tax.

Soaring home prices across the country, particularly in major cities, have been reducing home buyers' accessibility and raising worries over asset price bubbles.

In Shanghai, new home prices soared to a record average of 20,826 yuan (US$3,050) per square meter last week as a result of an imbalance between supply and demand - plus unwavering buyer sentiment.

In the existing home market, a sign of overheating has also emerged recently.

In March, monthly transaction volume exceeded the normal level of 15,000 units in the city and the figure skyrocketed to a record 31,275 units in June, according to Shao Minghao, head of research at Shanghai Hanyu Property Consulting Co Ltd.

"While it's generally good news for home buyers in the long run, it remains somewhat unclear how large of an impact the state policy will have on the city's housing market until detailed guidelines are worked out by the local industry watchdog," said Henry Wang, a senior branch manager at Shanghai Centaline Property Consultants Ltd.

"Most home owners told of the new policy sounded quite calm as their confidence in the market remained unchanged amid strong optimism over the country's economic fundamentals," Wang said.

(Shanghai Daily December 10, 2009)