Removing VAT exemption on low-cost housing may crimp property market growth

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THE residential market may experience a slowdown if the government’s tax reform plan, which removes tax exemptions on sale of low-cost housing, is approved, according to property consultancy Colliers International.

In a statement issued on Wednesday, Colliers International said House Bill 5636 or the “Tax Reform for Acceleration and Inclusion,” once passed into law, could add as much as P384,000 to the prices of low-cost housing due to the removal of value-added tax (VAT) exemptions.

Citing the approved bill, the property consultancy noted that VAT exemptions will be removed for the sale of residential lots valued at P1.92 million and residential houses valued at P3.2 million. Sale of socialized housing will also no longer be exempted from VAT once a housing voucher system is established.

While HB 5636 would increase government revenue collection by limiting VAT exemptions, Colliers said the removal of tax exemptions on low-cost housing would crimp the take-up rate of low-cost housing units, as well as make it harder for lower income families to own house and lots.

“Colliers believes that the increase is quite significant especially for starting families or new professionals,” Colliers’ Senior Manager for Research Randwil Dinbo U. Macaranas was quoted as saying in a statement.

Colliers noted 40% of the take-up rate of over 10,700 condominium units during the first quarter of 2017 came from the low-cost and socialized housing sectors.

At the current pace, pre-selling of residential lots in Metro Manila has increased by 5% annually in the last three years, with lots in neighboring provinces showing a slower growth at 1%.

At the same time, Colliers noted rental rates are likely to rise, as HB 5636 also removes the tax exemption for housing units leased out for less than P12,800 a month.

The property consultancy said vacancies in Metro Manila’s condominium market have already gone up at around 1% every quarter since the start of 2016. This is expected to rise as 49,000 condominium units are targeted to come online between 2017 and 2020.

“The planned imposition of additional taxes on residential leases will accelerate the on-going trend in the condominium market of rising vacancies and reducing rents,” Colliers said.

With the tax reform plan, Colliers said developers will have to craft more creative strategies on how to pre-sell their project and lease out ready-for-occupancy units. The trend of longer-term payments for sales and shorter-term leases will also continue in the residential market, the firm said.

“We see developers stretching the payment terms to a few more months to ease the burden of condominium buyers. Furthermore, many will be strengthening residential leasing teams to help keep them competitive in the rental market,” Mr. Macaranas said. — Arra B. Francia