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Research Seminars & Workshops @ IRES

Professor Dogan Tirtiroglu
Business School, The University of Adelaide

Hedonic Equilibrium Analysis of Property Tax Policy:
Evidence from the Shenzhen Metropolitan Area


29 July 2008


3.00 pm


IRES Seminar Room, SDE1 #04-24


We develop an equilibrium hedonic pricing model designed to distinguish the, shelter and, investment values of high-rise condominium dwellings. Theory defines the necessity or shelter component as that part of the hedonic function with declining marginal price per unit of interior floor area. The investment component is defined by rising marginal price per unit because this reveals greater willingness to pay for larger units. We suggest that the local government annually tax only the investment value to finance public infrastructure and services, and that the shelter component be protected by making the tax rate progressive. Such a tax would provide incentives for citizens to be actively involved in local government; in particular, tax rates and expenditure decisions will be of interest to property owners because tax money spent efficiently will benefit property value. We test our hedonic method using sales of new high rise condominiums in two districts within Shenzhen: Futian and Longgang. The results show that the dividing line between shelter and investment property is about 60 square meters. Our hedonic model shows that, in equilibrium the proposed tax would have resulted in additional revenues of between 5.5% and 13% of existing real estate taxes in the year 2000, or between 380M RMB and 840M RMB per year.

For full paper, download here

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