Economy, Business And Markets

Tax on Empty Properties

Tax on Empty PropertiesTax on Empty Properties

The revised tax law has now kicked in, requiring the owners of vacant homes to pay taxes on their property. The measure—which was to announced last week but would take a year to be implemented—was long overdue in that it was blamed for exacerbating the prolonged recession in the housing sector.

Real-estate brokers and construction magnates felt no qualms in the past about leaving their property vacant when faced with a price slump, no matter how long it would take the market to rebound.

Now the new taxes will make it harder for investors to adopt a ''buy and hold'' approach to the housing sector—a sector which has a 38% share in Iran's economy. According to Morteza Tamaddon, former governor general of Tehran Province, there are approximately 300,000 unoccupied homes in the capital, with a large portion of them luxury apartments, awaiting high-end customers.

However, some pundits are of the opinion that "empty homes tax"—though an effective strategy, would take place in fits and starts. For Iranian real-estate brokers and home constructors, property tax is an unheard phenomenon and any shock reform in this area could disrupt the relative stability in that sector.

"President [Hassan] Rouhani's administration is right in its approach to revise the tax law but it should seek to cut its own size at the same time since a big, inefficient government is itself part of the problem," Behnam Maleki, an economist, told ISNA.

Rouhani has taken unprecedented action to reform Iran's flawed tax system. On Aug. 16, the president ordered financial institutions to send their annual turnover and customer account information to tax authorities.

Although the authorities acted promptly to allay public fears that the new ruling would not translate into deposit taxes, they said the database will be used to verify tax returns and prevent tax fraud.

Contrary to experts who maintain that addressing the woes of the housing market should top the list of governmental policies, Maleki sees the housing sector as secondary since it is a "consumer product" and cannot be regarded as a recipe for economic progress.  

He believes that the government should distinguish between the generating sectors of the economy and the non-generating ones. He criticized the policies that address housing problems only in big cities while smaller towns are getting the short shrift.  

Youth unemployment and economic troubles have led to mass migration of up to five million from rural areas to large metropolitan areas in recent years.

Web of Woes    

Housing stagnation is complex and addressing it may need real reform. From the inefficiency of housing stimulus plan, which saw the mortgage ceiling almost double, to the pernicious involvement of commercial banks, the multi-faceted crisis has created many dilemmas for policymakers.  

The news of revised taxes notwithstanding, the housing recession continues to ravage that sector. As debates continue on how to move the real-estate sector, most pundits point to the need for affordable housing projects as a viable remedy to stimulate the market.   

Nasser Ashouri, a member of the parliamentary economic commission, recently noted that exorbitant home prices are a direct result of a "supply and demand imbalance" in that sector.

"If construction picks up steam, it will definitely help lower home prices but when home building is slow, prices will naturally go up," he said.

The lawmaker urged the government to tighten its monitoring over the housing market in order to regulate prices.

Affordable housing has been tried by the former administration in the form of Mehr Housing Project but was largely held back by mismanagement and poor planning.

Belated wisdom has it that the real-estate market is resilient in the face of adversity. But sometimes the need for comprehensive action becomes all the more necessary.