Lack of capital

A senior expert on the property market, Dang Hung Vo, said that the most important reason making the year 2008’s property market stagnant is due to the fact that this market has no enough capital which would allow it to develop more. Answering to Diaoconline on the 1st of January, Dang Hung Vo isn’t optimistic about the recovery ability of this market in 2009. According to him, it’s too difficult to overcome the current situation of capital shortage, especially in the current context when the country shows signs of deflation, and when domestic capital sources are very weak.

Besides, in early 2009, property investors (including property speculators) are facing to pay previous loans to banks. The lowered housing and land prices (increasing the number of transactions but not so many), and the mature term of payment (including capital and interest) cause many difficulties for the investors.

Previously, borrowing capital contracts were mortgaged by properties. When the investors don’t have money to pay debts, the banks sell mortgaged assets. As a result, sources of property supply increase, and then, housing and land prices are able to decrease further.

Accordingly, the property market would be caught in a vicious circle, which can lead housing and land prices to decrease further if there is no solution of increasing capital from overseas. This situation is rather similar to speculators’ current secondary credit crisis in the United States.

Speaking to the press recently, an independent economic expert, Bui Kien Thanh, judged that most of the property projects, which are being implemented or already completed, are “commercial products”. They are mainly dedicated to buying-reselling, earning profits on separated prices compared to the original investors’ ones, or profits on the special relationship between the speculators and the investors. These projects will be difficult to maintain, as the number of speculators reduced a lot last year, as available capital source become exhausted and also as banks don’t lend credits as easily as previously. Many speculators must sell out their commodities in order to pay debts to the banks, because the borrowing capital contracts are mature already, even if they still don’t find customers for their apartments as well as villas.

However, Dang Hung Vo also says that, if the properties crisis is a bad news for the speculators or businesses relating to this sector, this cool market is also making good conditions for normal laborers to “dream” to own their houses.

Moreover, this is also a necessary “quiet moment” for the government to improve market management tools, which are very difficult to do when the property market is hot.

Confused personal income tax with properties

Personal income tax, including property transfer tax, came into effect from January 1st, 2009. According to many experts and even tax officials, some property tax payment regulations still have many rifts. As stipulated, only housing assets will be exempted from transferring tax. Nguyen Duy Minh, Deputy Manager of Personal Income Tax, in the General Department of Taxation, told that such tax exemption principle means that someone is allowed to own house and land only when he/she doesn’t have any accommodation yet.

However, collecting tax only happens in case of properties are transferred and certified by government agencies (the handwritten document is considered illegal). Meanwhile, many land plots currently haven’t been granted by certificates of owners use rights. Therefore, determining the buyers’ properties is very difficult. Tax sector can only be based on the self-declaration statement and documents which confirm such person’s ownership.

Nguyen Huy Tuong, Head of Management Department of Personal Income Tax, admitted it sometimes happens that someone having two properties in two different localities could not solve them yet because there aren’t included in the nationwide system of land registration. Therefore, they only declare one property in the locality where they can transfer housing and land without paying any tax.

According to the regulation, fixing the personal income tax for property transfer at the effective rate of 25% can be implemented when determining the taxed income during the property transfer. And the rate of 2% can be applied for not determined original prices (buying prices) of transfer and related charges as a base to define the taxed income.

“If both sides declare a buying price lower than the market, the tax agency will rely on the land valuation regime issued by the People Committees of provinces and cities at the time of transfer to calculate the tax rate. In fact, people can find a way to dodge law. However, compared to the previous tax rate of 4%, the new tax of land use transfer decreased by 50%. In reality, homebuyers and sellers will probably find ways to support this tax rate of 2%,” Mr. Minh says.

Answering to Tien Phong Newspaper, Le Van Khuong, chief of Hong Khang Law Office, says that the Personal Income Tax Law doesn’t regulate the offered times of housing and land. As a result, the owner of 3-4 houses can transfer the procedures to his/her relatives, and sell the remainder as a unique property. Then, doing such procedures can allow them to sell these remainders under the above form, in order to evade tax.

Nguyen Tran Nam, Deputy Minister of the Ministry of Construction (MOC), has just submitted to the Prime Minister several solutions which would heat up the frozen property market. Accordingly, the Ministry of Construction suggests that the Prime Minister entrusts the Ministry of Finance with localized and extended debts to create good conditions for businesses, and allow them to have enough capital for their project implementation (increasing the supply source for the market). The MOC suggested a personal income tax reduction for those who purchase houses for the first time, as accommodations is a basic need for people. Moreover, the ministry also proposed to spend a certain amount of money, collected from land, in order to set up housing development fund, which aims to directly support the residents by lending or building houses to sell on installment plan.

In order to stabilize the property market, the MOC petitioned that the localities would set up a housing development fund to support the projects or give preferential loans to medium and low income earners willing to buy houses by mortgaging themselves, with interest rate lower than that for business purpose and regulated by province’s People Committee. In case of the residents wants to buy apartments (under 60 sq/m by unit) and to be exempted from registration fee, or in case of people are willing to sell homes (to buy another and improve living/working conditions), they will benefit on a reduced 50% on the registration fee.