Property tax will not prevent speculation: experts
Imposing property taxes on houses is not a radical solution to build a healthy market, experts say. Taxation will make the real estate market, which is in difficulties because of legal problems and short supply, become even more deadlocked.
Nguyen Quoc Khanh from the Vietnam Realtors’ Association said that investment and trading of real estate are taxed. These include land use fees, corporate income taxes, transfer taxes and property registration taxes. All these kind of taxes and fees are taken into account when setting selling prices.
If the State imposes a property tax, the market will be seriously affected. The housing prices will be higher because of the additional tax, which will make both investors and clients wary. If so, the market will become frozen, with no transactions.
The lack of transactions will also affect local budget collections. The revenue from land transfer transactions and land use fees account for a significant proportion of budget collections. As such, property taxes not only will not help increase state budget collections, but also kill sources of revenue.
Tran Van Thanh from N.T Real Estate said that the Ministry of Finance (MOF) needs to consider carefully when proposing a new kind of tax at this sensitive moment. For the real estate market, it’s necessary give time to businesses to prepare for new policies.
In 2009, Vietnam applied a new policy under which real estate was not a production sector and therefore the sector could no longer easily access bank loans. As a result, many real estate businesses faced difficulties, with led to bad debt. Some businesses even went bankrupt because of the policy, which affected the construction and, building materials industry, and workers.
Thanh warned that property taxes will restrict transactions in the commercial housing sector, and there will only be transactions of housing for accommodation and few transactions for business purposes.
The tax will also lead to a shortage for the leasing sector because of high taxes, and will not encourage investment.
The impact will stifle the growth of the real estate market, an important business field of the economy which affects 40 other industries such as construction, cement and steel manufacturing.
He said that in Vietnam, the housing market segment is developing well with supply still far behind demand and there is no sign of an overly hot market caused by speculation.
“I think MOF needs to consider the situation carefully before proposing the taxation, especially when businesses are in difficulties because of the pandemic.”
Dinh Trong Thinh from the Vietnam Finance Academy also thinks that it is not the right time to impose that kind of tax at this time.
He said people and families are experiencing a tough period because of Covid-19 with revenue decreasing. Therefore, imposing a property tax at this time won’t be supported by people and businesses.
HOREA (HCM City Real Estate Association) Chair Le Hoang Chau, said, in most countries, land is privately owned and a ‘land use fee’ doesn’t exist as in Vietnam.
In legal documents, a land use fee is not a kind of tax, because it is stipulated in the Land Law. But it is collected to give to the state budget. If a property tax is imposed, new taxes would be heaped on old ones.
MOF, when proposing the property tax, believes that this is a solution to help prevent speculation, thus helping the real estate market develop well. But according to Nguyen Duc Lap from the Real Estate Research and Training Institute, the bottlenecks in the legal framework and the enforcement of regulations are the major reasons hindering the development of the real estate market and raising prices.
In 2022, real estate prices are expected to continue rising and supply-demand imbalance will become more serious, especially in Hanoi and HCM City.
He believes that the most radical solution to the problem is simplifying legal procedures and increase the supply. The supply will create healthy competition which helps to reduce prices and brings more opportunities for people to own houses.
It’s also necessary to urge local authorities to speed up the approval of investment in projects, which will help improve supply.
Regarding long-term solutions, in addition to the standardization and optimization of the regulations to make the market healthy, it’s necessary to use tax as a tool to regulate supply and demand, and real estate prices.
Instead of putting one more burden on people and businesses with a new kind of tax, Vu Dinh Anh, an economist, said favorable conditions for the real estate market to recover after the pandemic are needed. The most important thing is improving the financial capability of real estate firms by recovering revenue and profits, as well as increasing their stockholder equity and core capital.
Anh believes that policies on tax payment postponement, tax and land use right fee reductions, and reductions of tax obligations will help real estate firms recover their financial capability.
While some people support the Ministry of Finance’s (MOF) plan to tax houses, others warn that taxation is not feasible and this may bring the opposite effect.
Prime Minister Pham Minh Chinh has assigned the Ministry of Finance (MOF) to study and design some kinds of tax related to the real estate market, including property tax, in order to stabilize the market and reduce speculation.