“Imposing high taxes on short-term real estate purchases reduces market liquidity”

DNHN - Lawyer Nguyen Thanh Ha warns that imposing high taxes on short-term real estate transactions can reduce liquidity and affect sellers who need to make urgent transactions.

Proposal to Tax Real Estate Based on Ownership Duration: Pros and Cons

A recent proposal by the Ministry of Finance to tax personal income from real estate transfers based on ownership duration, similar to practices in some other countries, has sparked significant interest among real estate investors.

Speaking to Enterprise and Integration Magazine about this proposal, Lawyer Nguyễn Thanh Hà, Chairman of SBLAW, emphasized that this is a noteworthy issue with both positive and negative aspects that need careful evaluation.

Positive Aspects

From a positive perspective, taxing based on ownership duration could encourage individuals to hold onto real estate for longer periods rather than engaging in short-term speculation for profit. This approach would help stabilize the real estate market, reduce the risk of "bubbles," and ensure a sustainable housing supply.

According to Lawyer Nguyễn Thanh Hà, individuals who own real estate for a short period often gain higher profits due to market price differences. Imposing higher taxes on such transactions would promote fairness among different ownership groups. This proposal could also increase tax revenue from short-term transactions, especially in a dynamic real estate market, contributing to the state budget.

Challenges and Limitations

However, Lawyer Nguyễn Thanh Hà pointed out several challenges and limitations:

Complexity in Ownership Duration Calculation: Determining ownership duration could become complicated in cases involving multiple transfers, inheritance, or gifting, posing difficulties for tax authorities and property owners.

Reduced Market Liquidity: High taxes on short-term transactions might reduce market liquidity. Those needing to sell properties urgently may face disadvantages.

Administrative Costs: Managing and monitoring ownership duration to apply appropriate taxes could increase administrative costs for tax authorities and create additional burdens for the public.

Potential Tax Evasion: Individuals or organizations might exploit loopholes by using inheritance, gifting, or false contracts to evade higher taxes.

A Balanced Approach Needed

Overall, the proposal has positive implications for fostering a more stable and transparent real estate market. However, successful implementation requires clear and specific regulations on determining ownership duration, enhanced tax administration capabilities to prevent fraud, and a thorough assessment of the policy's real-world impact. Additionally, tax rates should be carefully calibrated to avoid reducing liquidity or creating difficulties for legitimate transactions.

"If implemented correctly, this could be an effective measure to regulate the real estate market. However, detailed studies and a clear roadmap are essential to ensure effectiveness and minimize negative consequences," stated the SBLAW Chairman.

Taxation as a Necessary but Context-Specific Tool

Evaluating Vietnam’s current real estate market, Lawyer Nguyễn Thanh Hà noted that it remains highly dynamic, particularly in major urban areas. Investment in real estate continues to grow strongly, driven by both domestic and foreign investors.

However, the market still faces speculative activity, especially in the land plot and luxury apartment segments, leading to rapid property price increases that exceed the affordability of many people. Over the years, property prices in several areas have surged significantly, placing substantial pressure on citizens, particularly young people.

To address these challenges, Lawyer Nguyễn Thanh Hà suggested that real estate taxation is a necessary market management tool but must be tailored to Vietnam’s context to ensure fairness and effectiveness.

Short-Term and Long-Term Recommendations

Short-Term Solutions:

Apply progressive taxation on second and subsequent properties to curb speculation, encourage efficient asset use, and increase state revenue.

Tax personal income from real estate transfers based on ownership duration, with higher rates for short-term transactions and reductions for longer ownership periods. This would deter speculative "flipping" and promote long-term investment.

Long-Term Strategies:

Consider property taxes based on the market value of real estate, coupled with exemptions or reductions for essential housing needs such as social housing.

For tax policies to be effective, Việt Nam needs a transparent land management system with comprehensive databases and fair enforcement. Clear implementation timelines, coupled with transparent communication, are critical to minimizing negative impacts on market sentiment and public perception. Additionally, upgrading land management systems and digitizing information will ensure accurate and transparent data.

By addressing these aspects, real estate taxation could become a significant tool for stabilizing the market and ensuring equitable access to housing while contributing to economic development.

DNHN