A new capital gains tax that was introduced in Vietnam last month is putting off property investors with many realtors reporting sharp declines in transactions.
Most new property in the emerging real estate market is bought off-plan and the title deed is transferred from the developer to the new owner on completion of the project.
The new tax though means that the capital gains from the transfer will be taxed at 25% and if it is impossible to calculate the taxable income a tax of 2% of the value of the transaction will be imposed.
Uncertainty about the financial implications and confusion about how to calculate it is putting people off, according to real estate agents. The Hung Hung Thinh Real Estate Company which is selling about 1,000 land lots and 500 apartments at 100 residential projects in Ho Chi Minh City reported that the number of transactions this month has dropped by 80%. Director Nguyen Thanh Dat is blaming the business slowdown on the new capital gains tax.
Another company with four real estate exchanges around the city said not a single transaction has been recorded this month.
Huynh Tan Gia Thanh, general director of The Gioi Dat Company, said land prices at the An Phu-An Khanh Project in District 2, for example, were only about VND5 million per square meter in 2002. Now land at the project can be sold for VND35 billion, which means the capital gain of VND30 million per square meter will be taxed 25%.
Tax agents confirmed that there is considerable confusion as it is up to each individual district tax office to determine how the tax will be calculated. In District 1, for example, taxpayers can choose from the two options — a 25% tax on capital gains or a 2% tax on the transaction value.
The tax officials in Nha Be District though said that they will determine how much taxpayers will pay on a case by case basis. Tax agencies in districts 5 and 8 have even stopped receiving property transfer applications as they wait for guidance from higher authorities. The property consultants CB Richard Ellis though do not think changes in tax policies will have a long lasting effect as the bullish stock market and progress in infrastructure development is encouraged investors to return to the market.
CBRE managing director Marc Townsend said that intangible signs all pointed to a dramatic turnaround in sales, particularly in new condo launches. In HCM City over the past 18 months a total of 14,967 condo units in 46 projects came on the market, and another 22,560 units in 44 projects were expected to come on the market over the next three quarters. Meanwhile, average asking prices have continued to rise by up to 3.4% quarter-on-quarter.