First-home scheme draws criticism

Experts have criticised the government's first-home scheme for having a far less positive impact on the property market than was expected, as eligible buyers gaining the maximum benefit will be taxpayers earning more than Bt4 million a year.

 The scheme has been panned for not helping genuinely low-income people to own their first home, besides which it is limited to newly built homes and does not include resale properties.

 Once the government clarified its policy on the scheme, many participants expressed disappointment as they had hoped to see an incentive for buyers in the form of a zero interest rate for the first five years of a home loan, as opposed to just a tax allowance.

Moreover, the reluctance of prospective buyers to make a transfer commitment as they awaited the introduction of the new measure has delayed the transfer of homes, resulting in the property sector experiencing a 20-per-cent drop in revenue in the current quarter.

The Cabinet yesterday approved the first-home scheme as proposed by the Finance Ministry.

The price of qualifying homes is capped at Bt5 million, with buyers receiving a tax deduction for up to 10 per cent of the purchase price. Residential units include new condominiums, townhouses and detached houses, but not resale properties.

Transactions must be made between today and the end of next year.

Home-buyers will receive a tax benefit for five consecutive years, starting next year, with a 20-per-cent deduction from their income tax payment each year. The Revenue Department has estimated the cost of the tax measure at Bt1.7 billion.

Critics have slammed the scheme as being designed to help high-income groups, instead of mainly assisting low earners.

They argue that the government should have capped home prices at Bt1 million or Bt2 million, instead of Bt5 million.

 Some say the government does not even need to boost the property market at a time of continuous economic expansion.

Prasert Taedullayasatit, director and chief business officer of property market leader Pruksa Real Estate, said the first-home policy would not help low-income earners save on costs via a tax allowance because people who earn about Bt20,000 a month do not have sufficient net income to pay income tax.

"People who have net income of about Bt4 million a year will get a tax benefit from this policy if they buy a first home costing Bt5 million, but they will gain only Bt184,000 over five years," he said.

According to Pruksa's research, first-home buyers account for about 15 per cent in value terms of annual residential sales, or Bt41.25 billion of an estimated total of Bt275 billion. If they received a tax allowance from a tax base of 10 per cent, the government would lose annual revenue of only Bt412.5 million.

Most people purchasing a first home, however, will spend between Bt1 million or Bt2 million per unit. Pruksa estimates their yearly net income at between Bt200,000 and Bt300,000, meaning they will save just Bt10,000 to Bt20,000 over the course of the five-year programme.

This compares with the Democrat government's previous policy, which offered a zero interest rate for the first two years, resulting in an interest-payment saving of between Bt120,000 and Bt240,000 per buyer over the course of the scheme.

"This policy has not stimulated the property market, but it has helped home-buyers who delayed their decision to transfer in the third quarter of this year to make a commitment in the final quarter," Prasert said.

LPN Development managing director Opas Sripayak said the new policy would not help many low-income people to own their first property, as those who purchase a resale residence or build on their own land will not benefit from the scheme.

"This policy did not challenge buyers. Now the government has declared a clear policy on the first-home scheme, the market should however recover after being in wait-and-see mode with a drop in revenue in the third quarter," he said.

Asian Property Development senior vice president Pumipat Sinacharoen said the scheme would stimulate demand for homes priced between Bt3 million and Bt5 million, as buyers could get greater benefits than those purchasing lower-priced accommodation.

However, the scheme could boost growth in property-related businesses such as furniture, home appliances and construction and building materials, he said.

Meanwhile, Sansiri expects to benefit from the policy because it has customers waiting to transfer 8,300 units worth more than Bt20 billion next year, said company president Srettha Thavisin. According to a survey by The Nation, new residences waiting to transfer in the last quarter of this year and during next year are worth nearly Bt300 billion.

 Twenty per cent of them are first homes, with many buyers entitled to the new tax allowance. However, the extent of their gain will depend on their net income.