Impact of new land, building tax on market

This initiative replaces the existing household taxes and local land taxes. One of its purposes is to address income disparity by taxing assets, but it could have a far-reaching impact on the property market.
This is the first time we will have a tax that imposes a significant cost on holding land and property. The general details have been released, but the exact details about how the taxes will be charged and collected are still unclear. How far the taxes will affect the market will depend on several major issues.
It is essential that the definitions of agricultural, residential, commercial and vacant land use are set out clearly. For example, how will agricultural land, which is taxed at a lower rate, be defined? Will it be by town planning or by the actual use of the land?
If it is still a grey area, it could become a method to avoid taxation. We do hope that the new land taxes will overcome the grey area in the current household taxes and provide investors with a clear idea on the cost of holding land and property before making a decision to buy or sell.
Will the taxes be excessive and discourage property investment? Tax on vacant land is likely to trigger several outcomes.
If the rate is too high, a number of individuals who buy and hold land banks as long-term investments for capital appreciation will certainly release the land on to the market if they feel that the rate of tax payable is higher than the possible gain. This will deter investors from holding vacant land plots in the long run.
If the market is in a down cycle and illiquid, with few purchasers because of a lack of viable development opportunities, it will affect the value of land.
A dramatic increase in the amount of land for sale could depress prices, especially in less-prime locations where there is limited development potential.
In the prime central business districts where land supply is limited, the tax may encourage more supply to be released and promote land transactions. The value of the land will be dictated by the market and be more realistic.
Another key issue will be determining what is a first home and what is a second home, as the tax rates are different. This will mean categorising every residential property in the county as a first or second home, and as there are more than 20 million households in Thailand, this is not an insignificant task. The questions are whether this can be done before the law comes into effect, and whether the main determinant will be the household registration certificate.
Many rental leases are structured to minimise household tax payable on rent. The new tax will be based on capital value, not rental value, so the new law may lead to a revision in the way leases are structured, possibly in line with other countries, with rent and service charges that more accurately reflect the cost of providing service, at least for commercial unfurnished office leases.
We are also waiting for details on whether tax will be charged on the common areas of condominiums or housing estates or if these will be considered non-taxable.
While the new tax system will partly address income disparity, it may need some fine-tuning to ensure it does not negatively affect the land and development market in a major way by creating a wave of sales in a weak market.