Commercial Housing Receives VAT Incentive

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HANOI – A new circular released by the Ministry of Finance will reduce the tax burden on the sale and lease of homes and apartments within Vietnam, providing a boost to the country’s commercial housing sector.

Circular No. 141/2013/ND-CP will implement a 50 percent reduction in the value-added tax (VAT) applicable to the sale or lease of commercial housing. Currently, the VAT for commercial housing is 10 percent, which will be reduced to 5 percent under the new circular.

To qualify for the VAT reduction, each commercial housing unit must be under 70 square meters in size with a price less than VND15 million (US$705) per square meter.

The new decree is designed to improve the affordability of housing for Vietnam’s low-incomer earners, who have increasingly been priced out of Vietnam’s real estate market.

According to the former Deputy Minister of Natural Resources and Environment, Dang Hung Vo, the sizeable VAT reduction will make housing more affordable and increase demand in the market. Using the cost of a VND1 billion (US$47,400) apartment to illustrate the point, he said the circular would result in a tax saving of VND50 million (US$2,400), or five percent of the property’s cost.

The real estate sector has been the beneficiary of several other incentives this year, including a VND30 trillion (US$1.42 billion) loan package and a VND5 trillion (US$ 235 million) fund for low-income earners looking to purchase a home.

Real estate inventories have already begun to decline this year, a sign that housing demand is picking up. The Ministry of Construction has reported a fall of over 20 percent during the last two quarters in available inventories, which currently stand at VND102 trillion (US$4.8 billion) in unoccupied space.

Real estate prices are also expected to fall over the next few years, which will further strengthen demand for commercial housing, according to Dang Hung Vo.

“As the land fever has ended and hot speculative flows have left the market, housing prices are expected to fall significantly in the next few years. The price of flats and apartments will fall fastest, to as low as VND10 million (US$475) per square meter,” he said.

The new circular will take affect November 30 this year and may be applied to tax fillings from July 1, 2013, through to June 30, 2014.

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