Property prices in Rangoon continue to soar and government measures to cool down the real estate market in Burma’s biggest city are failing to make an impact, according to property agents and economists.
They said the government should revise its property tax policies in order to stop further price rises.
Currently, real estate buyers can easily avoid paying the full 37-percent tax rate due to government inefficiencies, said Than Oo, managing director of the Mandine real estate agency. He added that buyers are neither required to inform the Internal Revenue Department about the source of the funds they are using to purchase property.
For these reasons, the government can exert little control over the large amounts of money flowing into Rangoon’s property market, according to Than Oo.
“Since 2007, the local property market has been rising because of this tax system,” he said, “They can buy properties even if they can’t show where the money comes from when they are registered” with the Internal Revenue Department.
Thet Tun Oo, an economic analyst with the Myanmar Securities Exchange Center, said the property boom was in party fueled by illicit funds that are being laundered through the lax property sales requirements. Tightening government property tax registration, he said, would help rein in prices.
Real estate prices began rising 2007 after the government cut property tax from 50 percent to 15 percent. After assuming office in 2011, President Thein Sein’s government began introducing a raft of economic reforms aimed at attracting foreign investment, spurring a further rise in Rangoon’s property prices.
In the past five years, real estate prices in the city have increased up to ten-fold in some areas. Land prices have soared in parts of downtown Rangoon and market rates along Sule Pagoda Road in Kyauktada Township are the highest in the city at about US$1,500 per square foot. Residential areas along Inya Lake have also experienced a strong increase in property values.
In August 2012, in an attempt to cool down the property market, the government raised property taxes to 37 percent, but the measure has had little effect.
Strong economic growth forecasts for Burma, at 6.3 percent annually, and government plans to develop the city’s infrastructure and nearby industrial zones also contribute to rising land prices.
Last year, after reports spread that the government was planning to develop a Korean-backed special economic zone in Dala Township, land prices in the area, located opposite of downtown Rangoon on the other side of the Irrawaddy River, began to skyrocket. When the government denied the reports in December 2012, land prices in Dala plummeted.
The President Office’s Minister Soe Thein said in a speech on Aug. 26 that the government should try to prevent such sudden swings in property values by developing property tax policies that could influence property markets.
“Land taxes need to be reviewed. Some taxes need to be applied. Now, people are dealing in land and houses. If a tax is levied on each sale of land, the tax will control [rising land prices],” he was quoted.
The government is currently developing a property tax system that will levy different tax rates for different parts of the city, in order to adjust for the variation in land prices, according to some property agents, who said that Internal Revenue Department officials consulted them last month on land prices across Rangoon.
An Australian real estate consultant based in Burma said such surveys should be conducted by the Land Records Department and other government departments, so that officials can build up an accurate overview of land prices across Rangoon and set appropriate local property tax rates.
“The department should have more powers to make survey to establish what it thinks are real prices,” said the consultant, who declined to be named.
Some analysts, however, said they had little faith in the government’s capacity to revise property tax policies and deal with spiraling prices.
“I doubt that the government could impose effective regulations and measures that could really influence the price of land,” said Khin Maung Nyo, an economist who writes for local media. “According to the government’s record over the past 30 months, there will be no major changes.”
Source: The Irrawaddy