Three options
This regulation aims to provide criteria to more clearly identify individuals doing small-scale real estate business. Because according to Clause 3, Article 9 of the 2023 Law on Real Estate Business, individuals doing small-scale real estate business do not have to establish an enterprise, but must declare and pay taxes according to the provisions of law.
Accordingly, the Ministry of Construction is proposing 3 options to identify individuals doing small-scale real estate business. Option 1: Individuals selling, transferring, or leasing existing houses or future houses: 3-5 houses or apartments in a year. Individuals selling, transferring, or leasing existing or future construction works: 5-10 works or 5-10 floor areas of a work within 1 year.
Restricting transactions at this time will negatively impact the real estate market.
Option 2: Individuals doing small-scale real estate business can be identified by selling or leasing real estate under their ownership or right to use with an area of 1,000 - 2,000 m2 of land in urban areas. In rural areas, this area is larger, around 3,000 - 5,000 m2.
Option 3: Individuals invest in building individual houses with 2 floors or more and a scale of less than 20 apartments as prescribed in Clause 3, Article 57 of the Housing Law. Individuals sell or rent houses originating from inheritance or gratitude houses, charity houses, and solidarity houses that individuals are given by other parties.
Lawyer Tran Minh Cuong (Ho Chi Minh City Bar Association)
Meanwhile, current law does not provide specific details for real estate business cases that do not require establishing an enterprise.
Tax instead of restricting trade
Lawyer Tran Minh Cuong (Ho Chi Minh City Bar Association) commented that this type of regulation has never been seen in the world, is impractical and hinders market development. Instead, let people freely trade but have the responsibility to pay taxes correctly and fully according to the law. Specifically, this type of business should be taxed very high, because it does not create surplus value. The more real estate is bought and sold, the higher the tax is paid. Then both the state and the people will benefit because that tax is used to invest in and rebuild infrastructure...
Not only that, if this regulation comes into effect, which agency will monitor and confirm the number of purchases and sales of a specific individual to force them to establish a business if they sell 6 or more properties? Should they then be forced to establish a business before they can sell properties? If they do not establish a business, what sanctions will be applied? In the case that people agree to establish a business, but in the following years they do not buy or sell any more properties, will they maintain that business forever? Meanwhile, it is extremely difficult to dissolve or bankrupt a business in Vietnam today.
According to Lawyer Cuong, the real estate market is still sluggish, still like a sick person who has not recovered. There needs to be impacts to increase the number of real estate transactions, create liquidity for the market, this proposal is like tightening the "breathing tube", easily making the already difficult market even more difficult. The real estate market wants to develop, wants to sell, there must be brokers, investors, speculators... Real estate market management must orient it so that it develops stably, not if it cannot be managed, then prohibit real estate business activities.
"To increase revenue and prevent budget losses, helping the real estate market develop healthily, there needs to be economic solutions for management, not just administrative solutions. If there are more administrative regulations, the market will have to find ways to cope, find ways to circumvent the law, then it will be more chaotic. Therefore, we should not limit the number of houses for sale and rent, but need to create a tax schedule, impose heavy taxes on small individuals who surf the real estate market to make a profit. In particular, cases of buying houses and land and leaving them abandoned, not renovating or using them, just waiting for the price to increase to sell them for profit will have to be taxed even more heavily. The State can use that tax money as a fund to build new low-cost housing areas for the poor, meeting the real needs of the people. At that time, real estate investors and speculators will decrease a lot," analyzed lawyer Tran Minh Cuong.
Real estate expert Tran Khanh Quang said that if an individual does real estate business continuously and in large quantities, he needs to have a legal entity. From that perspective, this regulation is correct. However, if this regulation is applied immediately, it is unstable, or giving a specific number of 3-5 houses is not appropriate, but there needs to be a roadmap and time. Because there are individuals who own 2-4 real estate products but the value is up to 50 billion VND, even hundreds of billions of VND compared to an individual who owns 10-20 products, but each product is only 1-2 billion VND.
"The law is correct, but it needs a certain roadmap, because when establishing a legal entity, a real estate enterprise must be established. When bringing personal assets into a company, there will be many problems, it is not simple, and it must be explained, especially when bringing agricultural land into the enterprise. Currently, the regulation on the charter capital to establish a real estate enterprise is 20 billion VND. Is this reasonable or not? Real estate business as an individual, whether profit or loss, must pay 2% tax, while enterprises only pay tax when making a profit and they can include the costs in the enterprise's expenses. So in the long term, if individual investors intend to continuously invest, they need to establish an enterprise to easily manage real estate and make more profits. The problem is how the state supports to bring real estate into the enterprise's legal entity in the easiest way", Mr. Tran Khanh Quang analyzed.
Sharing the same view, Mr. Doan Ngoc, General Director of PropertyX Joint Stock Company, said that the issuance of such regulations is to limit speculation. The State's orientation is not to want real estate to develop too hotly, affecting many other industries and the entire economy. However, if transactions are limited, it will affect the market. During land fever periods, real estate "brokers" will not transfer the pink book but will use tricks to circumvent the law and evade taxes.
First, they will notarize the purchase and sale authorization with the homeowner, which means the homeowner authorizes the entire purchase and sale to the "broker" without transferring the pink book. Second, when the "broker" finds a buyer, they will notarize the transfer of ownership. Third, there are cases where the "broker" will negotiate with the homeowner in advance. Therefore, the State does not collect any tax from the "broker". Not only that, investors will also circumvent the law by asking relatives, wives, and children to have their names on the real estate. Thus, this regulation cannot be managed.
In the current context, this proposal is difficult to prevent speculation, but on the contrary, it may be counterproductive when it affects the psychology of investors who are already unstable. Therefore, an open mechanism is needed to attract resources because in the current context, real estate is still one of the channels to attract large and effective resources, especially foreign investment capital and remittances. More policies are needed to attract and promote real estate transactions instead of trying to tighten.
Mr. Doan Ngoc, General Director of PropertyX Joint Stock Company
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