The dream of owning a home may be farther from reach for many as 2021 begins and a tax reform law decreases the upper limit of value added tax (VAT) exemption for housing from P3.199 million to P2 million.
Republic Act No. 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Law, whose provision on VAT takes effect on Jan. 1 2021, will begin levying a 12-percent tax on homes priced above P2 million. The Subdivision and Housing Developers Association Inc. (SHDA), the country’s leading organization of housing developers, fears this could disenfranchise homebuyers and developers.
The real estate industry has a housing shortfall of 6.5 million units. If the number is picked apart, recent studies show that some 76 percent falls within the current VAT exemption: socialized (priced up to P750,000), economic (P751,000 to P1.7 million), and low-cost housing (P1.701 million to P3 million).
Decent, affordable homes
Offerings in these price ranges have provided decent, affordable homes for thousands of low-income families in the past, some of whom have struggled with amortization even prior to the passage of TRAIN. SHDA is pushing back for the segment, noting that the full 12-percent VAT will pass on to them. It has long rallied for affordable homes, noting these as central to the country’s effort to hurdle its massive backlog.
A burden
SHDA is also worried that the new tax would burden a currently “strong” housing market that, unlike other industries, has shown resilience throughout 2020.
“Demand has not been dampened by the pandemic, which strengthens the argument that so many millions are in need of homes,” explained SHDA. If anything, the lockdowns taught Filipinos the value of homes.
“Segments of our population that have typically put off homebuying to an older age or to married life have been found to be buying homes since the start of the quarantine period,” it further said.
Instead of disempowering this newly energized market, the government and the private sector needed to work together to serve them, SHDA noted.
Added obligations like the looming VAT would be a nonstarter, with COVID-19 diminishing Filipinos’ purchasing power. To counter the downturn, housing subsidies and end-user financing should take hold.
Pump-primer
In justifying its stand, the association also explained that the “pump-primer” housing industry “props up 80 allied industries, and employs at least 5 percent of the total national employment.”
Housing, SHDA added, had a 3.44 multiplier effect, or the value of P3.44 generated for every peso spent. TRAIN’s impact could repel developers from low-cost shelters, who struggle to recoup given rising costs of land and construction.
Extending VAT exemption
Furthermore, SHDA “fully supports” Corporate Recovery and Tax Incentives Reform or CREATE Bill, which recently passed the Senate. Contrary to TRAIN, the measure that awaits bicameral and presidential approval, extends VAT exemption and even raises the threshold to P4.2 million for house-and-lot properties and to P2.5 million from P1.5 million for lots. The bill lists mass housing as an investment priority, too.
With Secretary Eduardo Del Rosario finally getting a formal appointment, SHDA is optimistic that his Department of Human Settlements and Urban Development (DHSUD) could now focus on streamlining tedious processes for housing, among other changes.
“SHDA is committed to work closely with Secretary Del Rosario to address as many industry concerns,” the group noted.
The association may have a strong ally in him. Secretary Del Rosario had reportedly appealed for a delay in the TRAIN threshold adjustment at the Department of Finance (DOF) earlier this year.
As the New Year approaches, SHDA believes there is just no way to provide homes for all Filipinos other than a system more hospitable to low-income citizens.