How countries tax to prevent housing speculation

The UK increases taxes by 3% above normal for second home purchases, while Singapore imposes 20% taxes on second homes and 30% on third homes.

 

Earlier this week, in a report sent to the Government Office on the reasons for the increase in real estate prices, the Ministry of Construction proposed to tax those who own and use multiple houses and lands to limit speculation and short-term buying and selling for profit. This was proposed in the context of real estate and housing prices continuously increasing sharply since the beginning of the year.

 

On September 27, Deputy Minister of Finance Nguyen Duc Chi said that the Ministry of Finance agreed with this proposal and would study taxing people who own multiple properties. This is not the first time this solution has been proposed to reduce housing prices. Recently, the Vietnam Association of Realtors (VARS) also proposed a real estate tax policy for two groups, including buyers of a second home or more and owners who abandon the project. The tax rate will gradually increase for transactions where the seller has a short ownership period.

 

Not only Vietnam, cooling down the real estate market is also a challenge for many countries in the world. In which, using taxes as a tool to prevent speculation is a popular solution.

 

Taxes on second home

 

In the UK , first home buyer's tax is calculated on a progressive basis, based on the price of the property. Properties costing less than £250,000 are exempt from tax. At subsequent price levels, tax is 5%, 10% and 12%.

 

This means that the more expensive the property, the higher the tax rate. If you buy a house for £295,000, the total tax you will have to pay is £2,250.

 

Real estate value Tax rate

0 - £250,000 0%

£250,001 - £925,000 5%

925,001 - £1.5 million 10%

Over £1.5 million 12%

If you own a second home, the tax rate will be added 3% to the above rates. Accordingly, the tax rates will be 3%, 8%, 13% and 15%.

 

In addition, property owners must pay an annual Council Tax. This money is used by the local government to pay for public services such as garbage collection and road maintenance. The amount of the tax depends on the locality and the value of the property.

 

For example, in Westminster, London, homeowners who buy a home worth £40,000 or less pay nearly £650 a year in council tax. For homes worth hundreds of thousands of pounds, the tax rises to nearly £2,000. The UK government says that from April 1, 2025, if you buy a second home, your council tax could double.

 

Singapore - one of the most expensive real estate markets in the world - also uses taxes as a tool to control real estate. According to the country's regulations, when buying a second home, people and businesses in Singapore will have to pay an additional buyer's stamp duty.

 

This tax is applied depending on the subject. Singapore citizens will have to pay 20% tax if buying a second home and 30% for a third home. These two tax rates for permanent residents (PR) are 30% and 35% respectively. As for foreigners, real estate organizations and businesses, the additional stamp duty is applied to all transactions, at rates of 35-65%. This tax rate will be applied from April 2023, significantly higher than the old rate from December 2021 to April 2023.

 

 

Social housing in Singapore. Photo: Reuters

 

South Korea also imposes a tax on homeowners who own homes worth more than 600 million won (nearly $460,000). The tax, introduced in 2005, is an annual tax that homeowners must pay and is adjusted based on market conditions.

 

In July 2020, as housing prices continued to rise, authorities announced that those who owned three or more homes, or two homes in areas prone to speculation, such as Seoul, would have to pay a tax of 1.2-6%, higher than the previous rate of 0.6-3.2%.

 

Tax on vacant homes

 

In Canada , a 1% tax is applied nationwide to vacant or underused housing (Underused Housing Tax). However, this tax is mainly applied to foreigners, or organizations, fund managers in Canada.

 

A row of houses in Toronto (Canada) in 2022. Photo: Canadian Press

 

At the local level, some Canadian provinces also levy taxes on vacant homes. In Vancouver, for example, a vacant home tax was introduced in 2017 to make housing more affordable. Residents are required to file an annual report on the condition of their homes. Vacant homes are taxed at 3% of the government’s current valuation.

 

In Toronto, the tax is also used to increase the supply of real estate, as it encourages people to sell or rent out their unused homes. The revenue from the tax is used to fund affordable housing initiatives. It is now 3%, starting this year, up from 1% two years ago.

 

In the UK , the authorities also impose an additional council tax on properties that have been empty for at least a year. The exact amount depends on how long the property has been empty. However, owners can pay four times the normal council tax if the property has been empty for at least 10 years.

 

Taxes on selling a home with a short ownership period

 

In 2020, South Korea also announced a tax increase for those who sell their home within a year of purchase, to 70%. Those who sell within two years will be taxed 60%. For those who own multiple homes, the additional tax will be up to 30% if they sell.

 

On the contrary, in France , if you own a house for a long time, you will get a tax reduction. The capital gains tax rate when selling a house here is 19%. However, depending on the time of home ownership, the seller will get a tax reduction.

 

If they sell within 5 years of purchase, they will not get a reduction. If they have owned the house for 6-21 years, they will get a 6% reduction in tax for each year. In the 22nd year, the reduction is 4%. After that year, the sale is tax-free. For example, if they sell the house after 10 years of ownership, they will get a 30% reduction and after 15 years, it is 60%.

 

However, not all countries use taxes as a tool to control the real estate market. In China, the idea of ​​imposing a tax on homeowners was first proposed in 2003, but has yet to be implemented. Officials fear that the tax will depress housing prices and demand, affecting household wealth and the prospects for future real estate projects. It could also create a fiscal crisis for local governments, which rely on land sales to fund their budgets.