“Don’t Equate the 20% Tax Levy on Real Estate Capital Gains to Every Home Seller”

The proposed 20% tax on the difference between the purchase and sale price of real estate, aimed at curbing speculation and property flipping, has been met with concerns that it may hinder genuine homebuyers. Experts argue that a differentiated approach is necessary, with specific groups being targeted for taxation rather than a blanket tax.

Categorization is key

Mr. Nguyen Quang Huy, CEO of Finance and Banking at Nguyen Trai University, emphasizes the need for careful consideration before implementing a 2% tax on real estate transfer profits. He suggests that clear distinctions should be made between different buyer groups, especially those with a genuine need for housing, as they aim to improve their quality of life.

According to Mr. Huy, special consideration should be given to individuals owning a single property for personal use, with exemptions or significant discounts. Family transactions, inheritances, and home swaps due to relocation should also be treated differently.

The primary focus of this policy should be on professional investors, particularly short-term speculators. However, a progressive tax system based on holding periods is recommended. For instance, a sale within a year could incur a tax rate of 15-20%. If the property is held for 3-5 years, the rate gradually decreases, and after 5 years, it could be waived or significantly reduced. ” This encourages long-term investment and stabilizes the market,” Mr. Huy explains.

Additionally, developing a transparent and public database for property valuation is crucial to prevent tax evasion and artificial price manipulation.

Mr. Huy also proposes a flexible approach with a gradual implementation plan and market support. Instead of immediately imposing a fixed 20% tax, he suggests a pilot program in major cities or for obvious speculative properties. The tax rate would increase gradually over time, with periodic impact assessments.

” Taxing real estate profits is a necessary step towards a transparent and stable market that promotes sustainable development. However, to avoid adverse reactions, the policy must build trust with legitimate investors and protect the interests of genuine homebuyers,” Mr. Huy emphasizes.

Mr. Pham Hoang Duy, Executive Director of Minh Quang Finance Company, shares a similar view, stressing that the tax policy should be applied reasonably and not universally.

” For speculators and flippers, a heavy tax is justified. However, for those selling to upgrade or relocate, a different calculation is needed to ensure fairness,” says Mr. Duy.

He suggests adopting a progressive tax model based on holding periods, similar to practices in other countries. For instance, selling within the first year could result in a 50% tax, gradually decreasing to 0% after five years. ” This approach discourages speculation while encouraging long-term investment and prevents artificial house price increases,” Mr. Duy explains.

Meanwhile, Mr. Dinh Minh Tuan, Southern Region Director of Property Guru Vietnam, cautions against rushing to adopt this policy, as different buyer groups present distinct issues.

For investors, the primary concern is profit, and any additional costs will be reflected in the selling price, ultimately increasing property prices. Even a slight difference in the declared price could result in significant losses.

Genuine homebuyers will find it more challenging to afford homes as prices rise.

Determining the cost basis of a real estate transaction can be complex, especially for properties owned for decades. Various expenses, such as purchase price, brokerage fees, renovation costs, repair expenses, and loan interest, must be considered. If these costs cannot be ascertained, homeowners may end up paying a 20% tax on non-existent profits.

During periods of low liquidity, such as the recent market downturn with numerous projects sold at a loss or significantly reduced prices, imposing this tax could cause significant harm to homeowners.

” Tax policies should incentivize market development rather than restrict transactions and liquidity. Implementing a 20% tax on real estate transfer profits at this time could create hesitancy among both buyers and sellers. Ultimately, genuine homebuyers would bear the brunt of this policy,” Mr. Tuan emphasizes.

Economist Le Thanh Ha also stresses the importance of categorizing taxpayers. He suggests that short-term speculators and investors should be heavily taxed, while first-time homebuyers should receive incentives, exemptions, or reductions to ensure fairness and social welfare.

Additionally, Mr. Ha cautions against building tax policies on weak data foundations. Misleading information distorts the regulatory function of taxes and becomes a burden.

” Proposing a 20% tax on real estate transfer profits, if implemented hastily, could lead to unintended consequences. As the market strives for recovery, it is crucial not only to increase tax revenue but also to maintain stable liquidity and build trust among the public and investors. A good tax policy should not only focus on ‘collecting the right and sufficient amount’ but also on ‘collecting reasonably and for development,'” Mr. Ha states.

Should there be a tax on the second home?

Dr. Nguyen Tri Hieu, Director of the Institute for Financial and Real Estate Market Research and Development, suggests that Vietnam should impose a property tax on the second home onwards. The first home should be exempt or given preferential treatment as it caters to genuine housing needs. However, from the second home onwards, typically owned by high-income individuals, a tax should be levied to promote social equity, curb speculation, and increase state budget revenue.

Dr. Hieu cites the example of the United States, where all real estate is subject to an annual tax of around 1-3% of its value. Additionally, mortgage interest paid on the purchase of a home can be deducted from taxable income, benefiting genuine homebuyers.

” If we continue to only collect taxes on transactions, we will miss out on taxing those who hold multiple properties but do not utilize them. To sanitize the market, we must tax ownership rather than just transfers,” Dr. Hieu says.

However, he acknowledges that implementing a property tax requires a clear valuation system, transparency, and a suitable roadmap. Delaying the start of this process will only widen the gap in homeownership opportunities and exacerbate social inequality.

In reality, taxing profits is a common practice in developed countries. In Singapore, for instance, the sale of land within the first year incurs a 100% tax on the difference between the purchase and sale price. After two years, the tax rate drops to 50%, and after three years, it falls to 25%.

In Japan, selling real estate within five years results in a 39% tax, while after five years, the rate is approximately 20%.

Dr. Le Xuan Truong, Head of the Tax Faculty at the Academy of Finance, shares a similar view, noting that many developed countries have implemented property taxes on the second home or vacant properties to curb speculation and improve efficiency. In the UK, for instance, a 30% additional tax is levied when registering ownership of a second home. Countries like South Korea, Canada, and Japan have designed tax policies that ensure those holding multiple properties contribute proportionally.

Meanwhile, Vietnam lacks a mechanism to control ownership. Individuals or entities holding multiple properties but not engaging in transactions are essentially exempt from significant tax obligations.

From a different perspective, Dr. Nguyen Van Dinh, Vice President of the Vietnam Real Estate Association and President of the Vietnam Real Estate Brokers Association, suggests that only unused properties should be subject to high taxes.

Owning multiple properties, whether by an individual or an organization, is a legitimate right as long as they are utilized according to their intended functions and purposes.

For example, if an owner has no immediate use for a property, they can rent it out for residential or commercial purposes. This not only meets the housing needs of the population but also generates tax revenue for the state.

Similarly, owning 2-3 homes can provide essential services in areas lacking infrastructure, such as healthcare or mini-supermarkets. This creates additional jobs and adds value to society.

” The question we need to answer is whether owning 2-3 properties is an act of speculation that hinders market development or whether it generates wealth and adds value to society,” says Dr. Dinh.

To effectively implement this, Dr. Dinh emphasizes the need for a comprehensive land database. Collecting and systematizing information will contribute to market transparency, deterring fraudulent activities, tax evasion, and legal violations.

This data will help manage and understand the dynamics, quantity, and status of real estate on the market, enabling authorities to make informed regulatory decisions that ensure a transparent and stable market.