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Property Tax Confusion Stalls Market

Confusion and hesitation over a new law on property taxes have shocked the country’s real estate market, which has yet to recover from the global economic downturn, financial analysts say.

According to the law, passed by the National Assembly earlier this month, taxes will be levied on land, houses and buildings worth more than 100 million real, or $25,000, but experts worry misunderstandings over the law will interrupt the recovery of the stagnant real estate market.

Chan Sophal, president of the Association of Cambodian Economists, said the new tax law had confused people who worry they have to pay a lot of money.

“Educating people about the tax is really important right now, or it will give a negative impact on real estate, as people take a step back or sell their property at a low price,” he said.

For example, a $50,000 home will be charged $25 per year in taxes: the value minus a $25,000 tax base, with a 0.1 percent tax. A $30,000 home would be taxed $5 per year.

Experts say the tax rate is not high enough to cause real trouble in the real estate market, but it is confusion over the tax that has frozen recovery.

More than half of Cambodia’s 2.8 million homes could be taxed, according the National Valuers Association, which assesses property value in the country.

Real estate developers are concerned that if the law is promulgated within the next few weeks, or by the end of the year, buyers may become hesitant.

Sung Bonna, president of the association and the owner of his own real estate group, estimated that without the law, the market could bottom out by early 2010. With confusion over the new law taking place, that recovery will take more time.

“If the law is issued, buyers or investors will take a step back to wait and see,” he said. “They won’t buy, they won’t make a decision. If everyone just wants to wait, our real estate market will be down and quiet.”

If the situation continues, property values will decrease accordingly, he said.

Hesitation over the property tax could stall the market for an extra six months or a year, said Eng Bun Ung, president of ANFI, an Australia-based consultancy. Not only might the tax cause hesitation in potential homeowners, he said, but could also create hesitation in property investors.

Cambodia’s property market boomed from 2006 to 2008, but it slowed considerably after the downturn, in mid-2008, when values fell between 30 percent and 50 percent.

Property investment also went into decline, with fixed construction projects falling 20 percent in the last 10 months, to about $1.8 billion, according to government figures.

Im Chamrong, director-general of the Ministry of Land Management’s construction department, said the property tax would impact the real estate market, but he was unclear how significant the impact would be.

“We will inform our customers about this law,” said Sun Hum Lee, director for Gold Tower 42, a high-rise project in Phnom Penh. “By informing [them of this], I think it will decrease 10 percent or 20 percent of our sell amount.”

Youk Buntha, president of the Nay Sovan property development, said that since the law was passed, no new customers have come to view his 130 apartments, worth $20,000 to $30,000 each.

One buyer canceled his contract, because he was confused and thought he would have to pay “a lot” of money, Youk Buntha said.

“In fact, he had already decided to buy the house and agreed to deposit some money,” he said. “But he suddenly cancelled it and said he wanted to see the law first. So it has become an issue affecting our business.”

With the new law, Cambodia becomes the first developing country in Southeast Asia with a property tax; neither Burma nor Laos have one. By comparison, Thailand taxes citizens 12.5 percent on homes that are also used for commercial purposes, while Vietnam taxes a property-owner 0.03 percent of the construction cost.