Progressive tax scheme may lead to higher real estate prices

VietNamNet Bridge – Analysts have warned that the real estate prices may escalate if the Government applies the progressive tax scheme, which aims to reduce land speculation.

The Government has asked the Ministry of Construction to design the progressive tax scheme in an attempt to force the real estate price down.

Under the scheme, higher taxes will be imposed on those who own property and/or houses they leave idle in order to stop land speculation. However, analysts said that the progressive tax scheme may not bring the desired effects, and vice versa, this will make the real estate price higher.

Lam Van Chuc, Chairman of Phuc Duc Real Estate Investment Joint Stock Company:

I personally think that the progressive tax scheme should only be applied for individual investors, not for real estate firms, because the firms have to pay other kinds of tax already, including the land assignment tax, VAT and corporate income tax.

It is the wrong idea that the progressive taxation would make speculators reduce their purchasing power, leaving the opportunities to buy houses for those, who have the real demand for accommodation.

The State has been imposing high taxes on real estate traders, and if it imposes the progressive tax, the taxes will be even higher, which will cause the slowdown in the real estate market development. If so, the opportunities for poor people to access land and houses will become even fewer

In fact, speculators (those who buy houses for re-selling later), make 80% of real estate transactions. Once the State imposes the progressive tax, the real estate market will suffer.

If the taxes are overly high, the real estate prices will escalate, and not many people will buy houses and land because they cannot afford such high prices. Real estate firms will not make heavy investments in real estate projects, because of the decrease in number of clients. As the result, the supply of houses and land will decrease, while the state will not be able to collect tax from real estate trading activities.

I don’t think that the progressive tax scheme will freeze the real estate market, but this will surely cause the slowdown in the market development.

I believe that the scheme will not help settle the current problem to the very roots. The main reason behind the recent real estate price escalation is the imbalance of supply and demand. The state’s unsuitable policies themselves have been causing the land and house shortage, not real estate firms. The complicated procedures have been making the implementation of real estate projects slow, which has been causing the supply shortage.

Nguyen Huu Lap, Deputy General Director of Van Thinh Phat Investment Company:

The regulation on imposing progressive tax on real estate will influence the market heavily. By applying the scheme, the State wants to tax higher on speculators, but it is very difficult to determine who are the right speculators to tax.

A lot of people own more than one house, but they are not speculators, and they just want to buy more houses because their sons are getting married. Besides, a lot of people may own 10 houses, but they are also not considered speculators, because the houses bear 10 different names.

Unlike gold and securities, which both are influenced by the world’s market, the real estate market is decided by domestic investors. I think that what the state needs to do to force the prices down is to perfect the legal framework on regulating the real estate market.

For example, simplifying the complicated procedures will encourage real estate firms to make investments in real estate projects, which will help improve the supply, thus lowering the prices. Once investors find it profitable to make investment in real estate, a lot of real estate firms will be set up and compete with each other. By that time, the land and house prices will automatically decrease.

Do Thi Loan, General Secretary of the HCM City Real Estate Association

I do not advocate the plan on imposing progressive tax, because it may lead the real estate market to freeze.

First of all, the taxation will make the house leasing fee increase, thus affecting the investment environment and lessen the competitiveness of the national economy.

Secondly, state management agencies should also anticipate that the taxation will cause the foreign currency blooding and the freezing of the real estate market. As the investments in securities cannot bring the desired fat profit, and the investments in real estate are tightened, people may transfer money abroad to inject in more profitable deals. Meanwhile, investors will not be interested in Vietnam’s real estate market any more.

Regarding the feasibility of the taxation, I think that taxation bodies will face a lot of difficulties. Our management system still shows shortcomings, which does not allow them to collect taxes from the right people. I don’t think that the progressive tax will help reduce the speculation.

I think that the Government should remain cautious when making decisions on imposing progressive tax. In Singapore, all citizens have to pay the same tax of 4% per annum for the houses for accommodation, and 12% for the houses for trading or leasing, while the progressive tax rate is not applied in the country.

(Source: PL TPHCM)