A PROPERTY tax will be imposed on residential properties purchased from today by local families who already have one or more homes, the Shanghai government announced last night.

The tax, at a rate of either 0.6 percent or 0.4 percent depending on the price of the house, will also apply to newly purchased homes by non-local families, according to a statement on the official website of the city's information office.

Both new and existing properties will be covered.

There will be a living space allowance before tax applies. All properties owned by a family will be used to calculate living space.

A family would include husband and wife and children younger than 18, the statement said. Anything above 60 square meters per person will be taxed.

But adding up the total housing space a family owns will be triggered only in instances where a property is purchased starting today. That means that a family already owning two or more apartments will not pay tax, but if they buy an additional apartment now, all their properties will be considered taxable.

For taxable properties, a preferential rate of 0.4 percent will be adopted if the per-square-meter price of the property is not more than twice the average sale price of new homes registered in the city for the year before. The yearly average price for new homes, excluding those built under the city's affordable housing program, will be released every year by the local statistics bureau.

"It's actually no surprise to me that the city has launched a rather mild property tax, just as the market expected earlier," said Huang Hetao, research manager with Century 21 China Real Estate. "The relatively low tax rate means that its impact on curbing price growth will be rather small."

New housing prices in the city stood at a record average of 24,176 yuan (US$3,673) per square meter last month, up 7.6 percent from November and up 21 percent on January 2010.

"For prices to come down, the government needs to provide alternate investment channels for investors," said Michael Cole, research director of Colliers International, an international real estate services provider. "It will take some time for the country's financial system to mature sufficiently for this to take place."

While the property tax is mainly aimed at reducing excessive demand, some preferential policies have been introduced to encourage home purchases.

For instance, families who sell their previous home within one year of buying a new house will get the tax refunded if the previous home was their only residence, the statement said. And newly purchased properties by grown-up children for marriage purposes will be exempt.

In addition, properties purchased by qualified non-local professionals may get a tax waiver if the house is their only residence. The tax waiver will also apply to non-local people with local residence permits who have been living in the city for more than three years. For non-locals with local residence permits who have been living in the city for less than three years, tax will be collected but is subject to a refund three years later.

"That's good news for out-of-towners like me," said Jack Liu, a Shandong Province native. "The tax waiver policies certainly give me some confidence, though at the moment housing prices in Shanghai are still too high for me."

The tax is to be mainly used for the city's affordable housing program.

The other city implementing a property tax is Chongqing in southwestern China which is to tax high-end properties at between 0.5 percent and 1.2 percent from today.

All provinces in China will adopt the property tax "when conditions are ripe," a statement from the ministry of fiance said yesterday