BEIJING, May 30 -- The government will start to enforce a capital gains tax on property profits in order to help cool the booming market and avert a real estate bubble.

    According to a report in Hong Kong newspaper Wen Wei Po, China would apply the previously unenforced 20 percent tax on capital gains from property transactions on new houses sold within two years of purchase. Previously the law, which came into force in 1994, applied to sales within five years.

    The law would also apply a tax of between 2 percent and 5 percent on the full transaction value if the capital gain could not be established.

    A sales tax and a gains tax will also be imposed on the sales of older houses within five years after purchase, the China Business News yesterday cited the State Administration of Taxation as saying.

    Initially, the law will be enforced in about 10 major cities, including Shenzhen and Beijing, according to reports.

    These cities have seen dramatic increases in property prices recently. Prices in some areas of Shenzhen have risen by 25 percent, and prices in the northeastern city of Dalian have jumped by more than 10 percent, government data showed. In Beijing, prices rose 14.8 percent in the first three months of this year ¡ª compared to a year earlier ¡ª to 6,885 yuan (US$860) per square meter, according to the city government. Hohhot, capital of Inner Mongolia region in North China, reported a 14.9 percent hike. Shanghai is the only city where the prices of residential houses dropped. Its housing prices declined by 6.2 percent year on year.

    The prices of older residential houses rose 5.8 percent in the nation in April. Shenzhen, Dalian, Hohhot and Beijing had the biggest increases.

    Housing prices in major Chinese cities have continued to soar in the first few months of 2006, in defiance of the Central Government's year-long effort to rein in the market.

    In the face of increasingly bitter public outcry, the government has ordered local governments to increase the supply of affordable housing and threatened to crackdown on speculators and others who may be manipulating the market.

    (Source: Shenzhen Daily)