Some owners will be forced to dispose of assets to avoid holding cost, but the new tax policy should promote a more efficient use of land and real estate and thus benefit the country’s property industry in the long run, said JLL Managing Director Suphin Mechuchep.
As the new tax will introduce financial burdens on owners of properties that do not meet the tax exemption criteria, some of these owners will be forced to make better use of their property to avoid a high tax rate and/or get the property to generate income to offset the holding cost.
Others will be pressured to dispose of their property surplus so as to escape from this tax burden.
“Many of these owners are ‘asset-rich and cash-poor’, and may not be able to afford the new land and buildings tax, especially when the assets have high values. Therefore, they may decide to dispose of their real estate assets,” Mrs Suphin explained.
Banks are another group of owners that could face pressure from the new tax policy and thus may have to accelerate the disposal of foreclosed real estate collaterals, she warned.
“Though a low land and buildings tax rate of 0.05% is planned for banks’ non-performing assets (NPAs) for a period of five years, the amount of tax to levy on foreclosed high-value real estate collaterals could still be significant. Therefore, it is expected that banks will try harder to dispose of these NPAs,” Mrs Suphin said.
“In these circumstances, property owners who are forced by the new tax to sell their property assets will likely adopt a flexible pricing strategy to accelerate sales, meaning some of them may reduce asking prices.”
However, JLL expects that some well-capitalised owners will be unlikely to lower their price expectation and will continue to absorb the opportunity costs associated with their assets and add the increased costs to the selling price. “This strategy may work when the asset is a sought-after property in a prime location,” Mrs Suphin noted.
For Phuket, much of the same is anticipated, said JLL Director Dexter Norville. “Our view is that the impact on real estate should be similar in all property markets across the country. Having said that, in Phuket there are a lot of foreigners purchasing villas/condos on a leasehold basis.
“The tax levied to the real landlord or owner of the property will most likely be passed to the lessee of that property. In most cases this would be specified in the lease agreement… However ultimately the landlord of the property would be responsible for making sure that the payment is made,” he said.
Despite these downsides, the impact should be more positive than negative, Mrs Suphin noted.
Apart from being a source of revenue which can be used to fund services at a local level, the new tax should help encourage a more efficient use of land, particularly when the highest tax rate is applied to vacant land that has been left unused, she explained.
The new tax policy should also reduce speculative property purchasing, she added.
“The tax will increase risk exposure to those who acquire a property asset with the hope to hold it until it becomes more valuable and then resell it for profit. With the new tax, holding a property can be costly, particularly when the property is left unutilised or does not generate any income,” said Mrs Suphin.