The government’s tax reform agenda can slow the residential markets, as Value Added Tax (VAT) exemptions will be removed on housing-related transactions, according to research group Colliers International Philippines.
The group said the planned tax reform will make it harder for lower incomes families to own house and lots.
The House of Representatives approved House Bill 5636 or the “Tax Reform for Acceleration and Inclusion” on May 31 that aims to increase the disposable income by reducing personal income tax.
“If the House Bill is passed into law, selling prices of low-cost housing stand to add as much as P384,000 due to VAT. Colliers believes that the increase is quite significant especially for starting families or new professionals,” said Dinbo Macaranas, Colliers senior manager for research.
But the government seeks to increase revenue using VAT exemptions on different sales and services. This includes the sale of low-cost housing, and lease of residential units not exceeding P12,800 per month, the sale of a residential lot valued about P1,19,500 and of other residential dwellings valued at P3,199,200. The sale of socialized housing will also be removed from VAT exemption upon the establishment of a housing voucher system.
Compared from the same period last year, up by 29 percent or about 10,700 condominiums were already taken during the first quarter of 2017 in Metro Manila, and about 40 percent of the take-up accounts for low-cost and socialized housing groups, which can potentially decelerate during the removal of the VAT exemptions.
The pre-selling of residential lots in the metro have also increased by 5 percent during the last three years. However, a slower 1-percent growth was tallied in nearby provincial locations.
VAT exemption on residential leases costing P12,800 and less will cause additional increase in rental rates, and higher rents will basically cause more vacancies in condominiums.
In the condominium market, about 1-percent increase in vacancy was recorded every quarter since last year, but rental rates have been decreasing.
Over 49,000 condominium units were expected to be sold online up to 2020.
Colliers sees that the imposition of tax reform on residential transactions will accelerate the trends in condominium markets of reducing rents and rising vacancies.
Developers will also create strategies on pre-selling projects and leasing out ready-for-occupancy units, since longer-term payments for sales and shorter-term leases will continuously be suggestive in the residential market.
“We see developers stretching the payment terms to a few more months to ease the burden of condominium buyers,” Macaranas said.
“Furthermore, many will be strengthening residential leasing teams to help keep them competitive in the rental market,” he added.