Govt refurbishing home scheme

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Govt refurbishing home scheme
Wichit Chaitrong,
Somluck Srimalee,
Sucheera Pinijparakarn
The Nation 2011-09-28

Cabinet mulls new incentives while developers fret market has been left in a vacuum

The Cabinet is considering new incentives to counter criticism that its first-home policy will benefit only well-to-do people.

But it remains to be seen whether the new incentives will be enough to erase the impression that tax benefits under this policy mostly benefit the rich.

The Cabinet yesterday made a change to the first-home scheme it had approved earlier. Under the new rule, first-time home-buyers could directly use the incentives to offset annual tax payment, which is expected to benefit taxpayers more than the previous rule.

Earlier, the Cabinet had approved a Finance Ministry proposal to offer 10-per-cent tax rebates to first-time buyers for houses costing no more than Bt5 million. The government came under criticism for helping the rich who could afford houses priced up to that amount. The Democrats also accused the government of trying to benefit SC Asset, the property firm controlled by Shinawatra family.

Deputy Finance Minister Boonsong Teriyaphirom said a news conference would be held today to explain the new way of calculating the tax rebate. The previous package allowed first-time home-buyers to get tax refunds up to 10 per cent of the price of the property. Under the previous rule, tax incentives up to 10 per cent of a home’s price would be calculated as individual expense over five years, before computing the tax payment.

“People may be confused about the new package. The government wants to help low- and middle-income groups to own houses, so the additional package might include a waiver of specific business tax, the mortgage fee and home-transaction fee,” he said.

He said more incentives would directly affect the government’s spending plan, as it intends to run a fiscal deficit of Bt350 billion for fiscal 2012, with revenue estimated at Bt1.98 trillion against expenditure of Bt2.33 trillion.

The tax rebate is estimated to cost the government Bt12 billion.

A plan for zero-interest mortgages for first-time home-buyers will be submitted to the Cabinet next week, Deputy Finance Minister Viroon Tejapaibul said yesterday.

“I need to consult Finance Minister Thirachai [Phuvanatnaranubala] first, as the package would need government subsidy,” he told reporters.

Thirachai has just returned after attending the annual meeting of the International Monetary Fund and World Bank, Viroon said.

He said he planned to ask Government Housing Bank to provide mortgages at zero interest for three years to first-time home-buyers. House prices would be capped at Bt2 million, he said. The interest subsidy would cost an estimated Bt400 million annually, or Bt1.2 billion for three years on total loans of Bt10 billion.

The Finance Ministry will offer subsidy of Bt300 million a year and the rest would be shouldered by GH Bank, Viroon said. He said the package would also help the bank sell its non-performing assets, particularly homes in good locations, he said.

Issara Boonyoung, president of the Business Housing Association, said the government had to be clear about its policies. Home-buyers are asking property developers if they can transfer their residences now. However, the government has a tax-reduction policy and also possibly a zero-interest mortgage scheme for the first two or three years. The developers will become responsible for their loss.

“The government should have a policy to support people who buy homes but it has to be clear or the market could face a vacuum situation,” he said.

Prasert Taedullayasatit, director and chief business officer of leading property firm Pruksa Real Estate, said the market had slowed down again after the finance minister and his deputy said they would announce a new policy to drive the market. This creates hope among home-buyers as they wait for the policy to become effective.

“This has an impact on the market,” he said.

However, both policies – tax reduction of about 10 per cent of residential value, and zero interest for the first three years, have less benefit for home-buyers.

He said it would be better if the government said it did not have any policy to support the market rather than saying it was coming up with a policy and keeping everyone waiting.

Kasikornbank first senior vice president Chatchai Payuhanavee-chai said that even first-time home-buyers had no clear idea about incentives to the buyer. The bank is worried that the scheme might lead to speculative purchases to avoid losing out on the tax incentives.

The Cabinet has not made it clear whether it will offer tax privileges as a tax refund of the home price or a tax deduction. In the case of a tax deduction, buyers will benefit only if they are taxpayers. But home-buyers will benefit more if the government refunds tax to them. However, tax refunds might create speculation, as some buyers would be tempted to benefit from the refund of 10 per cent.

Normally, a buyer makes a down payment to the developer at 5 per cent of the total price of the home. If a home-buyer gets a 10-per-cent tax write-off from the Revenue Department, it would be possible for a buyer to forgo his down payment of 5 per cent to gain the 5-per-cent difference between the tax refund and the down payment.

Chatchai said developers should increase the down payment to 10 per cent of property value.

He suggested that the government should gradually hand over the tax rebate in five years and not pay the whole amount in one year, so that buyers can use the money to pay down the principal on their mortgage. It would also keep away speculators and buyers who might cancel the down payment, he said.