Economy, Business And Markets

Tax Reform Will Push Up Housing Prices

Tax Reform Will Push Up Housing PricesTax Reform Will Push Up Housing Prices

The expected changes to the tax regime will lead to higher housing prices and undermine purchasing power of the masses, the director of the National Union of Builders said Friday.

Jamshid Barzegar said the government, instead of raising taxes, should promote efficiency in production. “Hasty decisions would only harm manufacturing,” he warned, ISNA reported.

“There has been widespread disapproval of the recent revision in direct taxation law,” he said, referring to modifications to 60 articles of the direct tax law. The revisions are planned to help promote transparency in financial activities and empower the National Tax Administration in checking tax evasion and money laundering.

The law requires all government, municipal, non-government, public and financial institutions, the State Organization for Deeds and Properties plus private institutions to present all relevant data to the tax office. Recent reports said owners of empty residential units will also have pay tax as a sort of penalty for refusing to sell or lease their property.

“The market is in recession and constructors cannot pay high taxes and any tax increase should come after the market is bank on track,” the builder said.

The modified tax codes levy taxes on the value of property, “while across the world taxes are levied on the final product and profit not raw material,” Barzegar argued.

He welcomed the government’s pursuit of non-oil revenues but said such ambitious goals are not achieved overnight. He appealed to the government to put on hold the new housing tax schemes until the end of next five-year economic development plan (2021).

 Housing Market Forecast

Head of the Iranian Association of Builders—an official platform for developers -- discussed the future of housing market saying, “The market seems to be in a state of recovery and thus higher housing prices can be expected.”

Mojtaba Bigdeli, however, complained that the government’s anti-inflation policies have pushed many industries in the red. “High inflation is better than stagnation.”

Low purchasing power as a result of banks not providing loans to home buyers and high demand, caused by the decline in housing construction, will obviously push up home  prices in the coming months, he predicted.

“As the domestic economy is highly dependent on the housing industry plans to boost the market must involve reduction in construction costs,” Bigdeli said.

The government has come up with several schemes to stimulate the sluggish housing sector in recent months, including closer monitoring of brokers, taxing empty property, increasing loan ceiling for first-time buyers and providing builders with low-interest loans.

Official data show that the total number of houses built in urban areas was down by a whopping 50% in the last calendar year (ended March 2015).    

The real price of a house should include a 20% margin for the owner, but builders normally add 120-150% for construction costs.