By Kanana Katharangsiporn, Bangkok Post

new hope for buyers

28 September 2015

As the government weighs measures to revive the property sector, industry consultants and experts are urging incentives that would help homebuyers with affordability, lower their financial burden and give them enough time to prepare for an ownership transfer.

In several meetings with the government's previous economic teams, real estate groups and big developers had proposed measures to boost the housing sector, which has felt the pinch of the ailing economy.

Proposals at the time included a reduction in transfer and mortgage fees from 2% and 1% to 0.02% and 0.01% respectively (for houses priced at 2 million baht or less), plus soft loans and a lower special business tax.

Those proposals fell on deaf ears until the new team led by Somkid Jatusripitak was appointed in August. Finance Minister Apisak Tantivorawong, a member of the team, said last week measures to spur the property sector would be concluded soon.

Waiving transfer and mortgage fees is not the main issue, to his mind. More important are mortgage approvals, as rejection rates by financial institutions are trending higher.

Amid economic uncertainty and swelling household debt, banks have tightened loan approvals for fear of rising non-performing loans. Mortgage rejection rates at some banks have jumped to 30-35%, against a range of 25-30% under normal conditions.

Since taking the helm, Mr Somkid and his team have launched a flurry of stimulus measures aimed at revitalising the spluttering economy.

The cabinet approved them this month in a bid to put money quickly into the hands of rural residents and small and medium-sized enterprises. Other privileges aimed at boosting private investment are in the pipeline. 

"Whichever they [new property incentives] are, developers always win because they can sell more," says Phanom Kanjanathiemthao, managing director of property consultant Knight Frank Chartered (Thailand) Co Ltd.

"With incentives, developers can drain their existing stock and inventory. This benefit is greater than the tax or fee they can save if a reduction in transfer fees and special business tax is applied."

But the current situation is a problem for consumers rather than developers. It's all about purchasing power.

To give the full benefit to homebuyers, Mr Phanom suggests deducting from income tax. For example, 10% of the housing value can be deducted from annual personal income tax, divided into a five-year period.

It's true this incentive would only benefit homebuyers with taxable income; but those with no regular income or salary are unlikely to have a mortgage loan approved anyway, he says.

On the proposal to reduce transfer and mortgage fees, Mr Phanom says the ceiling of eligible home value should be raised to 5 million baht to capture the middle-income segment and have a bigger economic impact.

The perks should also be effective for at least two years to give buyers time to prepare and make decisions. A short period of three to six months would largely benefit those whose units are scheduled to transfer within the effective time, not those who have yet to decide on a purchase.

The longer period would also help reduce the Land Office workload for housing transfer registration, Mr Phanom says.

In addition to the proposed cut in transfer and mortgage fees, Aliwassa Pathnadabutr, managing director of property consultant CBRE Thailand, suggests waiving the special business tax.

This is a 3.3% levy on property owners who resell their property within five years of it being transferred to them. The law has been in effect since 1992 to curb speculation.

"A waiver of the special business tax for people who buy a property within the effective period of the incentive and sell it within five years will draw investment from frozen cash and help stimulate the overall economy," she says. The waiver could apply not only to houses but also other properties such as land plots.

Samma Kitsin, director-general of the Real Estate Information Center, says the new transfer and mortgage fees need not be as low as 0.01%. He thinks a range of 0.5% to 0.1% would strike a balance between revenue generation and tax relief.

"A fee of only 0.01% is like a free fee, and homebuyers will be unlikely to use caution in other spending," he says.

To prevent speculation, he says incentives should be given only to buyers who are a first- or second-time homeowner. The rationale for the second home is that people tend to buy a condo near their workplace or children's school.

Nalinrat Chareonsuphong, managing director of Nexus Property Marketing Co, says the government should fix the economy before worrying about incentives.

"Amid a sluggish economy, people wanting to buy a house will think it over rather than hastily grab incentives, as a home purchase is a long-term plan," she says. Any incentive should have an effective period of at least 18 months in order to benefit homebuyers and stimulate demand.

Surachet Kongcheep, associate director of property consultant Colliers International Thailand, says incentives such as reductions in transfer and mortgage fees would help move housing supply, especially the wave of condos scheduled to be completed this year.

"If available supply remains large, the country's overall economy will see an impact," he says. "The incentives can benefit both real homebuyers and longterm investors."

The fee waivers alone would not attract short-term investors or speculators, who would still have to pay the special business tax upon reselling a unit. Moreover, a reduction in transfer and mortgage fees might not help homebuyers who can't get a mortgage loan.

"The better incentive is to enable homebuyers to get a mortgage loan," Mr Surachet says. "Banks should educate them about how to make sure their financial status is in order and get the loan approved in the next 12-24 months when the project is completed."

Sopon Pornchokchai, president of property consultant Agency for Real Estate Affairs Co, suggests incremental rises in transfer fees depending on the period before transfer. The fee could be 15% if a unit is transferred within six months, 10% for six to 12 months and 5% for one to two years.

"This idea can prevent speculation," he says. "Speculation destroys the chance that a homebuyer can own a unit and that the developer meets a real end-user."

Besides generating higher income for the country, increases in transfer fees also help developers plan their marketing and sales strategy.

"Though the idea may weaken sales rates, it's better than an unearned increment by short-term speculators who cause market agitation," Mr Sopon says. He also supports a reduction in loan interest rates to help small businesses.