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New land and property tax forces site owners to consider options

THE NEW Land and Property Tax that comes into effect in January 2020 will present a new challenge for the Thai property market.

Vacant land is one of the sectors to be impacted, particularly given that many unused sites remain in Bangkok. 
The owners of these sites will, for the first time, have to start paying significant taxes once the new land tax is in effect. Many owners can be expected to develop some form of commercial use on these unused sites to generate sufficient income to pay the new tax and so avoid having to sell the land. 
The risk for many owners is that in their rush to develop a commercial use, they create an even bigger financial burden for themselves through building inappropriate money-losing developments. Lacking expertise, experience and market knowledge, they risk building something for which there is no demand and so end up owing the bank far more than the cost of the property tax.
Commercial office, retail or residential rental developments will not be feasible on many sites due to either the location or size of the land. 
Those owners may also lack the commercial expertise or financial resources to develop the site themselves.
Landowners first need to calculate how much tax they will have to pay and then carefully examine their options to earn income from developing on their sites. 
For example, renting parking spots may be the best solution in locations where people own cars but there is insufficient residential parking. In many Japanese cities, it is common to see even small land sites being used for commercial rental parking. 
The sites are covered in asphalt and have automatic parking systems usually run by a third party.
Although parking rates are much lower in Thailand than in Japan, developing car parking may be the easiest way to generate income on many sites and requires the lowest level of capital outlay by the owner. 
A second alternative for some owners could be leasing out the site to a third party. 
Leasing land could be done for either the short term or long term, but again only certain locations offer development potential along with demand from third-party tenants. 
For some landowners, finding additional revenue may simply |be too difficult and, faced with |the burden of the new tax, |they may decide to sell. 
After 2019, we believe there will be more sites available for sale and the mechanism of supply and demand will reduce the difference between asking prices and what purchasers are actually able and willing to pay.
Another question being raised, but so far without a clear answer, is the definition and interpretation of “land usage”, especially regarding agricultural land, which will be taxed at a lower rate than other land use. We will have to wait for the details to be found in the supplementary laws that are expected in July 2019. 

ALIWASSA PATHNADABUTR is the managing director of CBRE Thailand.

Published : May 23, 2019