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End of real estate tax breaks in Thailand will see price of new property rising in April

The incentives, including a reduction in the property transfer fee, a cut in the mortgage registration fee and a lower special business tax, helped boost property sales which increased by 7% in 2009, officials said.
But now developers are warning that they will have to pass on the additional costs to buyers and prices will rise from April as a result.
The changes mean that the transfer tax, currently 0.01% will go back up to 2%. Certain vendors, including property developers will pay a 3.3% specific business tax, up from 0.11% and mortgage registration will increase from 0.01% to 1%.
These taxes affect completed property so the announcement will create an incentive for developers with unsold completed inventory to sell and transfer before the expiry date.
It is not expected to have a significant impact on off plan launches but it will affect developers’ profit margins as developers pay the specific business tax.
Some developers may increases prices to compensate for the extra tax but the volume of competing projects scheduled to be launched this year may keep prices roughly level for similar products in similar locations.
The increase in mortgage registration means that it will be more expensive for borrowers to switch lenders once special introductory interest deals expire.
Thailand’s biggest home builder, Land & Houses, said it will put up prices in April to take account of the higher tax charges. It also said it expects to report only single digit growth in net profit in 2010 due to the higher costs.
Without the tax breaks, the company will shoulder an additional cost of about 4% of sales. ‘Our bottom line will show single digit growth this year instead of double digit,’ said senior Executive vice president Adisorn Thananun-narapool.