As news of a prospective tax increase is cooling the property market, anxious real estate traders have called for policymakers to ensure the changes and timing will not cause a market freeze.
A dire shortage of housing, fueled by the government’s weak management and speculation, inflated property prices, especially within the last year.
The government, in an effort to correct the market, proposed levying a progressive scheme in which owners had to pay increasingly higher rates of tax on their excessive or unproductive land.
Le Hoang Chau, vice chairman of Ho Chi Minh City Real Estate Association (HOREA), called for thorough preparation and considerate timing for applying the new tax regime in order not to shock the market.
“[The well-prepared] tax will be truly a tool to bring back social equality, a source of state revenues, and a lever of economic growth,” Chau said.
He also warned of a hike in property prices as investors would want to shift their additional tax burden to buyers.
Another real estate businessman, Le Khac Phuc, said the progressive tax scheme was “necessary to prevent speculation, but [its application] needs a roadmap.”
“Any rush [in applying the new scheme] would make the market fall into hibernation like some years ago,” he warned.
The proposed tax, as well as the banks’ recent steps to tighten loans, has slowed the property market to a standstill and prices have started to drop.
Real estate companies have reported that many secondary investors started to sell in a rush, fearing further reduction of prices.
Others are anxiously contemplating their next move.
Tran Minh Hoang, director of VinaLand real estate company, reported a 5 to 10 percent decrease in prices of land in newly-developed districts 2, 9 and South Saigon urban area.
More properties have been offered for sale lately but few had sold, he added.
Persistent problems remain
Some real estate traders and developers told Thanh Nien the new tax proposal still left many questions to ponder.
The Real Estate Trade Law allowed buying houses or land to do business but the proposed tax meant property businesses would face higher risk of losses, they argued.
One trader said the new tax would be unfair for landlords in the interim when they cannot find tenants.
Pham Sy Liem, head of the Institute for Urban Infrastructure Development Study, gave an example that “the progressive tax could kill an investor who built 50 villas but could only sell 10.”
“Say, if the [land area] limit is 100 square meters, if I inherited a larger house but I was too poor to pay the excessive tax, I couldn’t live in that house?” another real estate trader said.
Nguyen Van Minh, director of the Hanoi real estate exchange, said the plan could be unfeasible because it was still impossible to know how many properties a person owned.
Pham Ngoc Lien, head of the HCMC Housing, Land and Resource Registration Center admitted to the problem, saying the existing real estate registration system was outdated.
“Registrations are made at district-specific registration offices which are not in contact with one another.
One person can register many properties in many places and the government has no way of knowing how many properties that person owns.”
He said if a progressive tax were to be applied, the property registration system must be nationally integrated.
Plan goes on
Government officials, meanwhile, agreed that the progressive tax scheme would be useful for preventing wasteful land use and curbing rampant speculation.
Deputy Construction Minister Nguyen Tran Nam said the application of the tax could be difficult but “that doesn’t mean we should not do it.”
“Because land is owned by the entire people, the more land and housing area one owns, the more tax one has to pay to share the benefit with others,” he said.
“There could be some loopholes in the beginning and the government would have to continuously improve the policy,” Nam added.
He disclosed to Thanh Nien the ministry’s planned limit per capita of 30 square meters, the area beyond which would be taxed.
There would also be specific regulations for property developers and traders but “the principle of taxing property area” would be the same, he said.
Former Deputy Minister of Natural Resources and Environment, Dang Hung Vo, stressed that the tax’s ultimate goal was to “increase land use effectiveness.”
Revenues from the tax could be used to build houses for the underprivileged, he added.