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21 Sep 2011

Real Estate and Construction

Tax Incentive for First-time Homebuyers Boosting Real Estate Market over Remainder of 2011 (Business Brief No. 3178)

คะแนนเฉลี่ย
On September 20, 2011, the Ministry of Finance approved a tax cut for first-time homebuyers by offering a maximum10-percent income tax deduction on homes costing up to THB5 million. The buyers can enjoy the gradual cut in their annual income tax for up to five years (until receiving the total10-percent tax deduction.) The purchase of new residences via this program must be made from September 22, 2011 to the end of 2012 and the first-time homebuyers will then begin to get their tax deductions in 2013.
KResearch views that this measure willhelp boost both real estate sector and mortgage business over the remainder of 2011. An increase in price ceiling to THB5 million should also help expand middle- and higher-end customer base as it may accelerate the decision making of these customer segments with relatively high purchasing power. However, the program is only for individual buyers, with net incomes of THB150,000 or more per year. Obviously, this measure aims at spurring the purchasing power of middle- to high-income earners after many measures for low-income earners, such as minimum wage increase have recently been launched.
Developers of completed homes and those planning for completion within 2012 should benefit from this program. It is expected that their marketing efforts will surge over the remainder of 2011 in order to brace for market deceleration in the short term due to some factors, such as the effect of loan-to-value (LTV) which will be effective on January 1, 2012, for low-rise housing units. As per the new land appraisal criteria for 2012-2015, the land prices will increase by about 15-30 percent, thus likely adding more burdens to homebuyers. Regarding housing loan business that normally grows in line with the real estate market, the competition will likely intensify accordingly.
KResearch estimates that this incentive will stimulate the market over the remainder of the year. However, ownership transfers in Bangkok Metropolitan Region (BMR) in overall 2011 will likely contract 9.4-12.7 percent due to the market deceleration during the first-three quarters.
Those who will derive a benefit from this tax incentive will involve only earners with the taxable income of more than THB150,000 per year. Currently, there are around 10 million people filing P.N.D. 90/91 form, but only 2.1 million filers are required to pay tax. However, this program will not cover second-hand or custom-built residences, which are popular in provincial areas, so the said homebuyers will not benefit from the program. Moreover, those who have previously been co-borrowers and sought reduced housing loan interest rates will not be eligible for this tax incentive, thus lessening the number of eligible persons under this program.

Regarding the outlook for 2011, it is expected that ownership transfers may move in the range of dropping by 3.8 percent to increasing by 2.7 percent, compared to the normal situation without this scheme. Meanwhile, ownership transfers in BMR in 2012 may shrink by 0.6-6.0 percent over-year.

Real Estate and Construction