The number of transactions this month at Hung Hung Thinh had dropped by 80 percent from a month ago, Dat said, blaming the slowdown on the new capital gains tax.

Another company with four real estate exchanges around the city said not a single transaction had been recorded this month.

Property developers in Vietnam are allowed to raise funds from their buyers to build their projects, a method by which many new residential projects are funded. Buyers of those projects can transfer the right to own the property in the future to another person if they want.

But starting September 26, every time the property changes hands, the capital gains from the transfer will be subject to 25 percent tax. If it is impossible to calculate the taxable income, a tax of 2 percent of the value of the transaction will be imposed.

Bui Tien Thang, deputy director of Saigon Thuong Tin Real Estate Joint Stock Company, said 100 square meters of land at the Him Lam-Kenh Te project, for instance, was sold for VND900 million (US$50,547) in 2005. But now the lot can be transferred at VND4 billion ($224,655), which translates to a huge capital gains tax of VND775 million ($43,400), he said.

The problem is that in most transactions, property values are often reported much lower than the real market prices as sellers do not want to pay high taxes and fees. Now that the new capital gains tax has been introduced, buyers insist that the real prices are put down on paper to avoid huge capital gains tax payments later.

Of course, most sellers are reluctant to do this.

An investor in Binh Thanh District, identified only as Loan, told online newspaper VnExpress that two years ago she bought a land lot at a residential project in District 7 at VND4 billion, but the price in documents was adjusted down to only VND2 billion.

Now a person has offered VND6 billion for the land. As she had to report the real transaction value, the taxable income would be VND4 billion, hence a tax of VND1 billion ($56,000).

“I’ve earned VND2 billion from the land but now I have to pay a tax worth half that,” Loan said. “Considering the interest I had to pay and inflation, I haven’t earned anything.”

VnExpress said in a report on October 14 that in the past three weeks more than 80 percent of transactions could not go through because sellers and buyers could not agree on the transaction value to be written down on paper.

Many people have also said they find the way the new tax is calculated very confusing, with each city district following its own rule.

In District 1, for example, taxpayers are allowed to choose from the two options – a 25 percent tax on capital gains or a 2 percent tax on the transaction value. Meanwhile, tax officials in Nha Be District determine how much taxpayers will pay on a case by case basis.

Nguyen Xuan Loc, deputy general director of real estate company Vinaland, told VnExpress that many sellers and buyers just don’t know what to do, especially in cases in which the property has changed hands several times.

Loc said the new tax would continue to drag on property transactions over the next few months and it may eventually hurt overall investment into the real estate market.

Reported by Tran Thanh Binh