VAT reduction hoped to warm up real estate market

VAT reduction hoped to warm up real estate market

The decision by the Ministry of Finance on cutting down the VAT rate by 50 percent on commercial apartment projects has made buyers excited. However, sellers don’t feel happy about the new regulation because of the VAT refund problems.

Under the decision, which takes effects on November 30, the 50 percent VAT reduction is applied to the sale, leasing of commercial apartments and houses which have the floor area of less than 70 square meters and the selling prices of less than VND15 million per square meter (including the 10 percent VAT and construction work maintenance fee).

If an apartment is sold at VND14 million per square meter, and buyers have to pay 10 percent VAT and 2 percent maintenance fee additionally, or VND15.68 percent in total, the tax reduction would not be applied.

Real estate developers have immediately raised their voice applauding the decision. Deputy Director of Dat Lanh Real Estate Firm Nguyen Van Duc said the tax reduction will bring benefit to house buyers, thus benefiting the apartment market.

Duc said the tax cut would help buyers, especially the poor, save money. They are the main beneficiaries of the decision.

The 50 preferential tax rate is applied from July 1, 2013 to the end of June 30, 2014.

In case people buy apartments by installments with the contracts signed prior to July 1, 2013, they would still enjoy the 50 percent tax reduction for the payment periods during that time.

Real estate developers can sigh with relief now, because the tax cut would help stimulate the demand and boost sale to clear the inventories. However, a new worry has been arisen.

In the past, real estate developers had to pay the VAT at 10 percent when buying building materials. The tax would be refunded when they sell products.

For example, an investor had to pay VND10 million on building materials and labor cost to develop a project. He sells the apartments at VND13 million. If so, they would collect VND1.3 million from buyers, get the tax refund of VND1 million and pay VND300,000 to the state budget.

However, a new problem would be arisen if the VAT is cut down by 50 percent. In this case, the VAT the real estate developer can collect from buyers is just VND650,000, lower than the VAT the real estate developer paid to the state budget when he bought construction materials.

Duc from Dat Lanh Company said he still cannot imagine how the Ministry of Finance would deal with the problem.

Not only the developers of commercial apartments, but low cost houses will also enjoy the tax preferences, including the 10 percent corporate income tax and the 5 percent VAT.

After a long period of hibernation, the domestic real estate market has warmed up with a lot of products put on sale.

Low cost apartments are believed to be the most wanted products. This explains why a series of products of this kind has been marketed. These include the CT1B Tan Tay Do, CT12 Van Phu, Nam Xa La (VND10-14 million per square meter). Meanwhile, CT2 Tan Tay Do would be put on sale in some days at VND12.5 million per square meter.

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