Such consequences are significant, especially if land costs cannot be deducted. For example, assuming land price accounts for 40 percent of the total cost, and that price does not get a deduction, the tax rate for companies would rise from the current 5 percent to 7.04 percent. If land cost gets deduction, even if one were to apply a 12 percent VAT, the tax rate would decline from 5 percent to 4.4 percent.

Companies fear a number of other costs will also not get deductions. For example, in China construction companies cannot give their clients and developers invoice of construction workers' payment as many of them are informally employed. Companies also usually cannot get invoices for construction materials because most of their suppliers are small vendors.

Another troublesome issue is Chinese developers' dominant sale model, in which houses are sold before they are completed. Under the "pre-sale" model, as people call it, output tax items, or tax on sales, are levied at the beginning of the construction. So the ensuing construction fees cannot be used to get deductions. But if houses are sold after they are completed, massive input tax items get deductions in a long time span. If the completed properties are for lease, it takes even longer to get the deductions.

All these practical issues would plague companies in the industry, Wu said. Companies could maintain their sale price and compromise their profit margins, or in some cases, transfer the increased tax to consumers, which means higher housing prices.

"The change in how taxes are levied could shift a range of corporate strategies, including how they deal with their supply chain and their sales models. The earlier they make preparations the better," Wu said.