Sun, Aug 24, 2014 - Page 8 News List

Understanding real-estate taxes

By Lin Chien-fu 林建甫

A recent Ministry of Finance forum on how to set up a system for taxing real-estate transaction income leaned toward combining the value of housing and land and then taxing the actual transaction price. There are a few misconceptions in relation to this suggestion that need clearing up.

First, those in the real-estate industry say the nation has an 88 percent house ownership rate, which means that many people will be unhappy if the government tries to lower housing prices.

This figure comes from the Directorate-General of Budget, Accounting and Statistics’ (DGBAS) Social Indicators 2010. The ownership rate was calculated by dividing the number of houses registered as “own housing” with the number of households. At the time, the definition of “own house” ownership was more relaxed: It was sufficient if the property was owned by anyone in the household or by a member of the immediate family.

For the 2012 census, the DGBAS changed the definition after referring to international standards, and changed the unit from “house” to “person” — the number of registered owners — and required that a person must be a permanent resident in the household for the property to be counted as own housing. That brought the figure down to 79 percent.

However, the fact that some people own two or more houses further distorts data. According to the Snails Without Shells Alliance’s estimates, the 88 percent ownership rate should be explained by saying that of 100 families, 70 families own 88 houses, and among those, 60 families own one house, seven families own two houses, and three families own three houses or more. The remaining 30 families do not own a house, and among them, 40 percent rent their housing or live in dormitories and 60 percent live with others, such as relatives or friends, in particular children living with their parents or several families living together.

Based on this calculation, apart from the 10 percent of families who own two or more houses and who may have increased their wealth as the result of soaring housing prices, 60 percent of the public own only the one house in which they live, and have therefore not experienced an increase in wealth. As a result, they will not be able to move to bigger housing as their children grow and their housing becomes too small. As a result, an attempt to lower housing prices will not be met with animosity; instead, it will eliminate complaints.

Furthermore, those in the industry say that the government’s attempts to lower prices in recent years has resulted in a lower number of transactions and declining liquidity.

The veracity of this argument is yet to be proven. Although the declining liquidity in recent years is related to the special sales tax — the “luxury tax” — those with deep pockets have made it through without problems, which implies that they will return to the market. This means that what has really caused the decline in transactions is probably that high housing prices have caused doubts among the public, who then hesitate to enter the market to avoid being stuck with an expensive house. Only those who can afford to change housing or speculators predicting an increase in prices will enter the market. This means that once housing prices return to reasonable levels, mobility will increase, and that will also benefit other related industries, such as agencies, brokerages, advertising and marketing.

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