Low-cost housing buyers seen cancelling purchases

MANILA, Philippines -  The lifting of the value-added tax (VAT) exemption on low-cost housing as proposed by the tax reform bill could result in the cancellation of housing unit purchases, a property analyst said.

“Some buyers will not push through with the purchase because if we’re talking about a P3.2-million house, that means an additional P380,000,” Colliers International senior research manager Dindo Macaranas said.

Last May, the House of Representatives approved House Bill 5636 also known as  “Tax Reform for Acceleration and Inclusion,” which aims to improve Filipinos’ disposable income by reducing personal income tax. However, the bill also aims to raise government revenue collection by limiting VAT exemptions.

Macaranas said the additional payments would hit most low-cost housing buyers who are just starting out and buying their first homes, which could lead them to delay their purchase.

“For starting families and most individuals, a P380,000 (addition) is not cheap,” Macaranas said.

Asked if this could drive demand for the rental market, Macaranas acknowledged the possibility, especially with the declining rents.

“It could help the rental market, because some would rent rather than purchase,” Macaranas said.

However, the proposed tax reform bill also seeks the removal of the VAT exemption on residential leases amounting to P12,800 and less. Colliers earlier said this could lead to additional increases in rental rates.

“The higher rents will consequently push vacancies up in existing condominiums,” the property consultancy firm said.

Vacancies in the Metro Manila condominium market are expected to rise with the passage of the tax reform law as more than 49,000 condominium units are expected to be completed until 2020.

The property consultancy firm is urging developers to be more creative in strategizing on how to pre-sell their projects and lease out their ready-for-occupancy units.

“We see developers stretching the payment terms to a few more months to ease the burden of condominium buyers,” Macaranas earlier said.

Moreover, property stakeholders previously warned the removal of VAT exemption for housing would exacerbate the country’s growing housing backlog.

8990 Holdings Inc. president and chief executive officer Januario Jesus Atencio earlier said lifting of the VAT exemption would make housing inaccessible.

“We’re going to make housing more inaccessible by increasing the price tag by 12 percent or more because of the imposition of VAT on mass housing and the significant reduction of investment incentives by the BOI,” Atencio said.

Atencio said while he understands the government’s need to collect more taxes, the contribution of the housing sector to economic progress should also be considered.

“But development and progress is not all about money.  Take a look at housing and not only how it contributes to economic benefit as an industry the way other industries can not compare,” Atencio said.

Latest data from the Subdivision and Housing Developers Association of the Philippines (SHDA) show the country’s housing backlog stood at 6.7 million at end-2015.