Can Taxing Real Estate Transactions Based on Ownership Duration Help Lower Housing Prices?

In Vietnam, with the real estate market facing rising property prices, the proposal to apply personal income tax on real estate transfers based on the duration of ownership has become a point of significant attention. The Ministry of Finance believes this measure could reduce speculation, curb real estate bubbles, and help lower housing prices. However, many experts are skeptical about its effectiveness in directly reducing housing prices.

Theoretical Basis and Practical Reality of the Proposal

The Ministry of Finance argues that taxing based on the duration of ownership will discourage investors from engaging in "flipping," or short-term real estate transactions aimed at quick profits. In theory, such a measure would reduce speculative demand, lower property prices, and foster a more stable long-term market. In fact, countries like Singapore and Taiwan have already implemented similar policies to prevent speculation and encourage long-term property ownership.

In Singapore, the tax on real estate transfers is based on the length of ownership, with tax rates gradually decreasing over time. In Taiwan, properties transferred within two years of purchase are taxed at 45%, with the tax rate dropping to 35% for 2-5 years, 20% for 5-10 years, and 15% after 10 years.

Practical Challenges and Implementation Issues

While theoretically, taxing based on the duration of ownership may help reduce speculation and enhance market stability, many experts believe this measure will not effectively lower property prices.

Real estate expert Trần Khánh Quang points out that taxing based on ownership duration could make the real estate market less attractive to investors because the profitability will significantly decrease. Real estate investment already incurs various costs, such as 2% personal income tax, 0.5% registration tax, about 2% brokerage fees, and 8-10% capital costs. If this tax is applied, investors would have to hold properties for a longer time, increasing capital costs and loan interest. This could make real estate investment less attractive compared to other investment channels.

Additionally, this tax measure may push property prices higher. Sellers will likely pass on the additional tax costs to the final sale price, burdening buyers more. Therefore, while the policy may reduce speculative behavior, it does not directly lower property prices.

EZ Property CEO Phạm Đức Toản also believes that applying this tax based on ownership duration, with the aim of reducing housing prices, is very difficult to achieve. He notes that property owners will factor in all their costs when selling, and they will not avoid paying taxes. Ultimately, buyers will bear the brunt of this policy.

Other Solutions to Lower Housing Prices

To lower housing prices, experts suggest a more comprehensive approach. One key solution is to increase the supply in the market, especially by accelerating the development of social housing projects. Expediting the construction of social housing in major cities like Hanoi and Ho Chi Minh City will help relieve the pressure on housing prices and provide more options for middle- and low-income groups.

Professor Ngô Trí Long, former director of the Institute for Market and Price Research (Ministry of Finance), believes that taxing based on ownership duration is feasible and can help reduce speculative transactions, thus controlling rising housing prices. However, he also points out that this measure requires a clear implementation plan to avoid shocking the market. Improving the real estate data system and increasing the transparency of transaction prices are crucial steps to ensure accurate and effective taxation.

Tax expert Nguyễn Ngọc Tú suggests that a new tax type, such as a property tax or real estate tax, should be studied instead of combining it with personal income tax on real estate transfers. He believes this approach would tax real estate investors' profits without unnecessarily impacting the market.

Conclusion

Taxing real estate transactions based on ownership duration could theoretically reduce speculation and promote a more stable market. However, this measure will not directly lower property prices. Experts believe that in order to reduce housing prices, more comprehensive solutions are needed, such as accelerating the development of social housing projects, increasing supply, and improving the real estate data system to ensure transparency and fairness in tax collection.