“The Russia-Ukraine tension, Covid-19, inflation, and challenges facing business are urging investors to look for assets that are less risky.” said real estate expert Phan Cong Chanh. And real estate is one of those assets, he added.
Despite drawing massive attention from both domestic and foreign investors, the real estate market still faces certain risks. Over the recent decade, the Vietnam Government has employed several drastic measures to curb real estate speculation. They have been strengthening those measures recently to create favorable conditions for businesses in the “new normal” situation.
National Housing Development Strategy to control real estate speculation
In December 2021, the Vietnam Government approved the National Housing Development strategy in 2021-2030 with a vision towards 2045 by issuing Decision No.2161/QD-TTg.
“Land fever” has arised multiple times in the real estate market since 2017. During these times, speculators and brokers push land prices and then induce investors to enter the market. Even when the land fever disappeared, land prices could not decrease much. Many investors suffered from significant losses. Land fever has also deprived people of the opportunities to own accommodations, especially residents in metropolitan areas.
Therefore, one of the strategy’s most significant aims is to offer affordable housing products to residents with low to medium incomes. The strategy also aims to make the real estate market more sustainable and transparent, while also ensuring that it is consistent with land-use programming. Another goal is to reduce land speculation, which wastes land resources.
In addition, along with approving the strategy, Prime Minister Pham Minh Chinh suggested that the Ministry of Finance should propose such additional real estate taxes as a property tax on housing, in order to stabilize the market, curb speculation, and effectively utilize residential real estate.
In fact, currently people are still exempt from paying a residential property tax. They just have to pay a 0.03 percent tax for the use of non-agricultural land, which includes residential land. However, according to the ministry, imposing a high tax on those who own a large number of properties but don’t actually utilize these real estate would be necessary. It would discourage the hoarding of land.
In fact this idea is not new because the property tax was proposed several times in the past. However, the proposed tax was withdrawn due to public opposition. This law can have profound influence on the economy as a whole and on individuals’ incomes. Therefore, the Government understands that many aspects need to be considered before launching the law.
Property Tax proposed in the Tax Reform Strategy for 2030
Recently, as a result of land fevers in many cities and provinces, the property tax has been revived.
According to the tax reform strategy for 2030 which was approved on April 23, the Vietnam Government will look into imposing a tax on homeowners and raising land taxes to combat speculation and improve property-use efficiency.
According to the strategy, to stimulate agricultural and rural development, tax on agricultural land will continue to be exempt until 2025. However, the Government would consider an increase in the tax on non-agricultural land. Notably, to prevent speculation, the Government will also put a tax on property assets into consideration.
Many economists are in favor of the Ministry’s idea to tax houses because prices have still skyrocketed and the speculation rate is still high. Meanwhile, others argue that currently taxing is not feasible and might be counter-productive.
According to Le Hoang Chau, Chair of the HCM City Real Estate Association (HOREA), if Vietnam imposed a property tax on real estate while still collecting land use fees, it would be a real problem. The owners of land still have to pay land use fees as a kind of property tax. Therefore, the new tax would overlap the existing ones.
Some economists stressed that this type of tax would increase house prices, putting a strain on those who have demand for accomodations. If so, the ministry couldn’t achieve the initial goal of cooling down the real estate market and facilitating the low-income residents.
Some also believe that taxing second, third, and subsequent houses will be difficult in the current situation. First, there has been no precise definition and practice about tax subjects such as ‘property’, ‘house’, ‘second house’ or ‘third house’. Second, the Vietnam real estate market is highly appealing, and many foreign investors are buying two or more properties. This property tax may lower the attractiveness of this sector.
However, it can be seen that proposing new taxes, monitoring bonds issued to the market and tightening credit sources for real estate are all measures that the Government takes with a view to purifying the real estate market.
In conclusion, the potential of Vietnam real estate stems from the country’s fast growing economy and the Government’s dedication to create a healthy market. Besides, there is still room for further prosperity as the demand for urban construction land is about 400,000 ha in 2020. This number is projected to increase to 450,000 ha by 2025.
Therefore, investors would yield great benefits if entering the Vietnam real estate market now and investing in large-scale projects that aim to foster socio-economic growth . By regularly updating the real estate market trends and regulations, Viettonkin is confident to provide you with insightful advice on real estate investment opportunities in Vietnam. Our experts with years of experience in this industry will help you make a wise investment decision. Let Viettonkin be your companion along the way!