Looming and and buildings tax not likely to affect land prices in Bangkok’s prime locations, say industry experts.
Espite the looming land and buildings tax, land prices in Bangkok’s prime locations are expected to continue rising over the next year.
Panhom Kanjanathiemthao, managing director of property consultant Knight Frank Chartered (Thailand), says the land and buildings tax, due to be enforced on Jan 1, 2017, is not likely to force landlords to sell their land plots in a hurry.
“The new tax is unlikely to be so high that landlords want to avoid paying it or sell their land. It is worth keeping the land as the price will appreciate in the future,” he says. “Many plots were acquired this year because offering and asking prices were met.”
The long-awaited tax, designed to expand the national taxpayer base, won the cabinet’s approval in June. It sets ceiling rates of 0.2% of the appraisal value for land used for agricultural purposes, 0.5% for residences, 2% for commercial use and 5% for vacant or undeveloped land.
The tax will be levied on primary homes and land used for agricultural purposes with appraisal prices starting at 50 million baht, with the rate applied on the amount exceeding 50 million baht.
Owners of primary homes and farms with an appraisal price below 50 million baht will be exempt from the tax.
The tax will also apply to second homes on a progressive basis, with rates of 0.03% to 0.30% for homes whose appraisal values range anywhere from under 5 million baht to more than 100 million.
For vacant or undeveloped land, the tax rate will be imposed at 1% for 1-3 years, 2% for 4-6 years and 3% for more than seven years.
Rangsin Kritalug, chief operating officer of SET-listed firm BTS Group Holding Plc, says land prices in many instances have become unaffordable.
“We’ve got a lot of land offers but with prices that are so high,” he says. “If the offering price is 10-20% higher than our set price [the benchmark price determined by the company], it is acceptable. But today it’s 30-40%, which is too much.”
If developers buy a land plot today and wait for the price to rise in the future, their financial cost would be lower than the anticipated appreciation, Mr Rangsin adds.
“When land costs drive the selling price of a condo unit to be so high, mortgages for buyers may be a problem in the long run,” he warns.
But Vittakarn Chandavimol, head of the condominium business group for SET-listed developer AP (Thailand) Plc, says the company does not have a price limit when purchasing a land plot because doing so would restrict its potential for development.
“We cannot set a maximum land price as our project development focuses on locations in the central business district and near mass transit stations. Land prices in these areas are high and keep rising, with strong competition among developers to snatch up what’s available,” he says.
There are only three attractive land plots available in these locations with offering prices starting from 2.4 million baht per sq w.
They include a 1,000-sq-w plot near Central Chidlom, where a department store has been leasing space from the Sukosol family for parking; a plot opposite Central Embassy currently rented by food stalls and shops; and a plot near the Noble Ploenchit condominium.
Some plots located on Rama IV which include a building are now offered at 3 million baht per sq w.
“At these costs, we don’t think the Thai real estate market can have product development to serve such high selling prices,” he says. “Developers need to think of ways to create products that sell for over 500,000 baht per sq m.”
Kulwadee Sawangsri, executive director and head of investment and land services at property consultant CBRE (Thailand), says land prices in prime locations have risen every year, but prices this year will not yet reach 3 million baht per sq w.
“It’s now possible for land transactions with prices higher than 2 million baht per sq w, which was impossible three years ago,” he said. “But I don’t think it will reach 3 million baht for a whole plot this year, except for a piece that would usually be viewed as small, but is needed as an addition to a larger piece nearby to increase development value.”