“COUNTING HOUSES” IN THE HANDS OF THE PEOPLE

“This proposal may have violated citizens' rights to possess, use, dispose of property as prescribed by law” - Thinh, who has an apartment to live in and a unit to rent, asked me as such after reading the Draft Decree guiding the Real Estate Business Law 2023 defining what is small-scale real estate business.

Under an article covering the Draft on March 3, I also found that the majority of readers opposed the proposal with various arguments. In the face of this pressure, in the Second Draft, published on the Ministry of Construction Portal on March 5, the Ministry of Construction abandoned the proposal: each individual who deals in real estate can only sell, rent or lease 3-5 houses for a year.

First of all, I must make it clear, This Draft is not intended to prohibit or limit the amount of real estate that individuals can trade. He can sell, rent 50 or 500 houses, apartments. But when the transaction goes beyond the “small scale”, he must establish enterprises, cooperatives (types of economic organizations), comply with the strict provisions of the law on real estate business.

The regulation on the conditions for setting up real estate enterprises and cooperatives is also not a new issue, which is already contained in the Real Estate Business Law 2014. So why must the Draft keep making new proposals for an old regulation?

Because the previous regulation has not yet spelled out detailed, specific criteria, but goes in the direction of listing some specific cases for exclusion. But the list can rarely be complete and it is inevitable that inaccuracies in its implementation. This loophole of the law leads to many implications and points that are not justified. For example, despite the nature of real estate business, enterprises have to draw up projects with many complex and lengthy procedures. On the contrary, there are individuals who trade in real estate on a very small scale, operate very simply and easily; do not meet the conditions of this type of business that carry many risks, do not fully fulfill their tax obligations...

The method of real estate business in the personal name is usually: building a mini apartment or buying a large plot of land and then “splitting the plot” for sale, just apply for a building permit and separate the land plot. The consequence of this spontaneous form of personal business is that planning is broken, infrastructure is overloaded, which poses many challenges, not only in terms of economic management, but also in terms of social security.

Another popular method that has also been adopted by many individuals is to “buy and trade” many properties from investors and then tear out the retail sale to each buyer, earning the difference. “Traditional” is more like buying a house at a low market and selling for a profit when the market is high. Real estate bought and resold prices will stretch, indirectly creating a market bubble that exceeds the affordability of the majority of the population.

I would argue that defining what is a “small” real estate business does not affect the individual's ownership of the property. Ownership of real estate in particular and property in general of individuals has been protected by the Constitution and the law. The introduction of the criterion of “small-scale” real estate business only purely identifies individuals who do not have to meet the conditions for setting up a business to trade in real estate, just need to carry out the corresponding legal procedure.

Therefore, the approach of the draft Decree is justified. This regulation is aimed at managing the activities of individuals who accumulate excessive amounts of real estate for doing business without establishing a business. This is essential to ensure market transparency, fairness in business.

However, the specific solution offered by the Draft is not really convincing, it is easy to create a situation of “breaking the law” by asking the right person for the right name. On the other hand, the above regulation is also difficult to ensure an accurate and transparent “count” of how many properties each individual has sold or leased.

In state management, the use of administrative procedures for coercion is not yet known how effective, but it is easy to “team” compliance costs, from which many new negatives arise.

So what is the optimal solution to limit the status of individuals investing in spontaneous real estate business as it is today?

In my opinion, the bottom line is that the State should consider issuing taxes with owners from the second property onward or applying taxes based on the time of ownership. Those who own more properties will be subject to higher taxes than those who own less. The shorter the period of ownership the higher the tax transfer and vice versa.

Tax policy is an effective tool for managing speculation, surfing and real estate business. Only then will social resources be devoted to production and business instead of focusing on real estate. Effectively using the tax tool, the regulator will no longer have to “count houses” for sale and rental to capture business.

Lawyer Pham Thanh Tuan - WeLand Legal Director

(Article published on Vnexpress on 05/03/2024) https://vnexpress.net/tac-gia/pham-thanh-tuan-1768.html