The tax is likely to target investors who owned several luxury homes that they have either leased or left vacant to bet on capital appreciation, analysts say.
The city government has already completed basic plans for the tax, the Shanghai Securities News reported.
The move comes a week after the Chongqing government reportedly introduced a similar tax to stamp out speculation.
Residential prices soared as much as 60% last year in Shanghai, making it one of the most expensive cities on the mainland and putting the dream of home ownership out of the reach of most people.
"If this [tax] is introduced, it will encourage speculative buyers who have multiple properties to put some on the secondary market for sale," said Lee Wee-liat, a senior property analyst at Nomura International (Hong Kong).
It could slow transaction volumes as potential buyers stay on the sidelines to see what other measures the government might take, he said.
"Strong transaction volumes in recent weeks show that measures so far to curb property prices are totally ineffective," Lee said.
Property prices continue to rise despite the reintroduction of a 5.5% business tax on second homes bought and sold within five years. Several banks also have reduced discounts on mortgage rates to first-time homebuyers. Bank of China cut the discount from 30% to 15%in February.
The Hang Seng Index fell 61.73 points to 21,867.04 yesterday, led by property stocks, on fear of more tough measure to suppress home prices. Shares of China Overseas Land & Investment dropped 2.7% to close at HK$17.62 (RM7.26) and Shimao Property Holdings fell 1.1% to HK$14.88.
David Ng, the head of regional property research at the Royal Bank of Scotland, said the Shanghai government was doing the right thing in attempting to stabilise the property market despite the fact it would hurt buying interest.
"It will certainly send a warning signal to speculators that the government will introduce more tough measures if price growth shows no sign of abating," he said.
Clement Luk, Centaline Property Agency's chief executive for eastern and northeast China, said residential prices in Shanghai had risen 3 per cent last month from February and sales volume also surged.
"Our firm concluded 2,000 deals in the secondary residential market last year. Sales of second-hand homes have returned to last year's peak level," he said.
In November last year, a unit on the 28th floor at Tomson Riviera, a luxury waterfront residential estate in Shanghai, was sold for 160,844 yuan (HK$182,896 / RM75,355) per square metre.
Luk said average home prices in Shanghai were 20,000 yuan per square metre for new flats and 17,000 yuan per square metre for second-hand homes.
The hefty increase in home prices has been largely driven by Beijing's loose monetary policy and the 4 trillion yuan economic stimulus measures that caused massive amount of loans to flood into property investment. Officials are now attempting to put the genie back in the bottle because of fears of a property bubble.
Angela Lee, a partner at law firm Baker & McKenzie, said the planned tax might also apply to developers which are withholding completed property projects from sale in order to boost home prices.
"As the tax will increase the holding cost of investors, it will affect the investment sentiment," she said.
But she said it was difficult to assess the impact because of a lack of details on when it might be introduced and how much the levy might be.
The Shanghai Housing Support and Building Administration Bureau, which is responsible for drafting the new levy, declined to disclose details, but a spokesman said: "It is completely normal for the government to study the issue, as introducing property tax has been discussed for years."
Luk, however, said the new tax would have little impact on the market.
Cashed-up investors would be more concerned about the impact of further interest rate increases and the upcoming supply of new flats - South China Morning Post
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