Brian Jeffrey
Revisiting the Second Home Tax Debate in Vietnam
The idea of imposing a tax on second homes has come back into focus, following suggestions from the Ministry of Construction alongside the Vietnam Real Estate Brokers Association (VARS).
Various news outlets have reported potential backing from the Ministry of Finance for this initiative. However, the Ministry’s leadership has addressed the issue with caution, stating:
“Relying solely on tax policy will not resolve the underlying issues. Other critical factors, such as land management and urban planning, also play a significant role. Although the Ministry of Finance values input from the Ministry of Construction, it will carefully consider all financial regulations that influence the real estate and land sectors to foster a clear and stable market. A piecemeal approach may achieve superficial objectives while disregarding broader implications.”
Consequently, the Ministry of Finance remains hesitant regarding the proposed tax on second homes, despite repeated calls for its implementation from various stakeholders.
This cautious stance is warranted, as any tax policy can significantly affect the real estate market. As the author points out, introducing a progressive tax on property may have adverse effects on the market, the government, and society at large in the current context.
Across Vietnam, there are numerous undeveloped land plots and countless neglected villas, representing a waste of valuable resources. From a fairness standpoint, introducing a progressive tax could help address these issues, potentially lowering property prices and making housing more accessible for lower-income households.
Nonetheless, this viewpoint leans heavily on sentiment and may overlook the complexities of market dynamics, which operate independent of administrative decisions or emotional responses.
The real estate market is diverse and nuanced. For instance, how do we differentiate between “investment”—which is generally seen as positive—and “speculation,” which has a negative connotation?
For instance, is acquiring additional plots or homes for future inheritance viewed as a prudent investment or mere speculation? How can we definitively categorize these actions?
From a corporation’s viewpoint, purchasing land for potential business expansion in the next several years might be seen as a strategic investment. However, if a company needs to liquidate that land sooner due to operational changes, how would such a decision be classified?
Understanding this distinction is crucial to effectively implement a tax aimed at discouraging speculative practices.
Experiences from developed nations illustrate that progressive property taxes often lead to capital flight, resulting in economic issues such as job losses and diminished tax revenues.
In recent decades, many countries, including those in the OECD, have moved away from stringent property taxes due to their adverse effects on economic stability. A notable article from The Washington Post discusses how France’s property taxes contributed to significant capital drain, with a stark contrast between revenue generated and economic costs incurred.
Moreover, there exists a gap in updated land data for both urban and rural areas, complicating the situation further.
Without adequate scientific assessment, introducing a progressive tax could deter local investment, causing money to flow out of the market and potentially leading to reduced operations for related industries, ultimately resulting in job losses.
Particularly amid an environment of investment uncertainty, individuals might choose to invest in properties abroad rather than domestically.
The assertion that taxing second homes will uplift the housing situation for the underprivileged is speculative and unfeasible. The recent Land Law adjusts land values to reflect “market value,” which often aligns with inflated, speculative rates.
Since the Land Law was enacted this year, a surge in land prices has been observed in major cities, adding financial strain for younger generations seeking homes.
To truly support affordable housing initiatives, comprehensive and varied policies must be introduced, including alternative taxation strategies. In several nations, home loans come with remarkably low interest rates spanning decades, in conjunction with reduced taxation for property developers. Such an approach can help facilitate a thriving social housing program, attracting businesses and allowing more people access to affordable homes.
Currently, Vietnam’s real estate sector is grappling with numerous challenges, with about 70% attributed to regulatory hurdles. This, along with a prevalent risk-averse mindset, has led to few project approvals, resulting in a supply deficit amid high demand—contrasting sharply with China’s situation. In cities like Hanoi and Ho Chi Minh City, high demand coupled with inadequate supply has driven housing prices to unprecedented levels.
Therefore, any policies related to real estate taxation, particularly around second homes, must undergo thorough scrutiny to avert market turmoil, loss of public confidence, and detrimental impacts on both the market and financial institutions in these challenging times.
