Experts suggest amendments to make Govt's first-home scheme effective
If the government wants to stimulate the property market while helping lower-income people buy their first home, it will have to revise its original plan, property experts say, suggesting such measures as cancelling transfer and mortgage fees and offering
They discussed this at a recent roundtable held by Krungthep Thurakij after the Cabinet revised its stimulus package to cover the purchase from now until December 31, 2012, of a first home costing up to Bt5 million. The deal is a five-year income-tax deduction of about 10 per cent of the value of the residence.
Participating in the roundtable were Pruksa Real Estate director and chief business officer Prasert Taedullayasatit, Business Housing Association president Issara Boonyoung, Thai Condominium Association president Thumrong Panyasakulwong, Agency for Real Estate Affairs president Sophon Pornchokchai, and Kasikornbank first senior vice president Chatchai Payuhanaveechai.
They said that under the current proposal, few would benefit from the scheme because people who buy their first home, typically one costing less than Bt2 million, earn on average Bt20,000-Bt30,000 per month, and therefore are classified as lower-income and are not subject to income tax. Meanwhile, people who earn more than Bt30,000 per month and are able to afford homes costing as much as Bt5 million are generally buying their second home, so they are not eligible under the policy.
However, they agreed they needed to wait and see how the stimulus package is amended when it goes before the Cabinet tomorrow(October 4), and whether it actually benefits low-income people who want to buy their first home.
Prasert pointed out that many low-income people were freelancers who did not have monthly salary statements, which disqualified them from getting mortgages from the banks. Meanwhile, the Bank of Thailand has set the loan-to-value rate at only 90 per cent when buying a condominium, and at 95 per cent when buying a low-rise residence such as a townhouse or detached house. This makes it difficult for low-income people to buy a home. If the government wants to help them, it has to relax the loan-to-value rule and let them apply for a mortgage for 100 per cent of the value of the home.
Issara said the government had to cancel transfer and mortgage fees for those targeted by its first-home scheme. Moreover, it should establish a long-term fixed interest rate for people who buy a home costing no more than Bt2 million, whether it is a new residence, a resale home, or one they build on their own land.
“A zero-interest rate for the first three to five years of a mortgage would help low-income people save costs when buying a home, but if the government added a fixed low interest rate, such as 2-3 per cent for about five to 10 years, that would be even better for them,” he said.
Thumrong said that if the government added to the policy a cut in the special business tax on property developers, which is now 3.3 per cent of a home’s value, that would cut home-buyers’ costs by about 6.3 per cent when combined with elimination of the 2-per-cent transfer fee and 1-per-cent mortgage fee.
“For example, when someone buys a home worth Bt1 million, they will immediately save Bt63,000. Home-buyers will benefit directly, rather than the complicated early policy that offers a tax reduction,” he said.
Chatchai said the government should make the policy cover new and resale homes, as well as those built on the home-buyer’s land. The government also should cancel the tax on personal income from sale of a first home. This would help the resale market grow and in turn help people buy low-priced homes, because resale residences are priced 20-30 per cent lower than new ones in the same location.
However, Sophon said the government had other economic problems that it had to be concerned about besides the property market.
“I think the property market will continue to grow and does not need any stimulus package to drive it,” he said.
The property market in Bangkok and its suburbs accounts for about 70 per cent of the total market nationwide. The Greater Bangkok market was worth Bt275 billion on volume of 101,620 units in 2010, with half of those units priced lower than Bt2 million, or about 25 per cent of total market value.
Meanwhile, the property market in metropolitan Bangkok recorded only Bt152.8 billion in sales in the first half of this year and looks set to drop about 20 per cent year on year in the third quarter. This is partly because home-buyers have delayed taking possession in the belief that they might benefit from a government stimulus package.
Although the government will launch a financial package for first-home buyers this week, the roundtable’s participants said they believed that the property market this year would drop by 5-10 per cent compared with 2010. Last year was a special case, as transfer and mortgage fees had been cut from 2 and 1 per cent respectively to only 0.01 per cent, and market growth exceeded estimates. Those cuts expired in June last year.
