The new Land and Property Tax which will be effective from January 2020 onward, is another challenge for the Thai property market.
One of the sectors that will be impacted is vacant land. There are still many unused sites in Bangkok. Owners of these sites will have to start paying significant taxes for the first time once the new land tax comes into effect in January next year.
Many of these owners want to avoid paying the higher rate empty land tax by developing some commercial use on these sites which will generate enough income to pay the new land tax so that they do not have to sell the land.
The risk for many owners is that in their rush to develop commercial use to avoid paying the higher tax rate they create a bigger financial burden for themselves by developing inappropriate loss-making developments.
Lacking expertise, experience and market knowledge, they may end up building something for which there is no demand and end up owing the bank far more than the cost of the property tax.
For many sites, commercial development of office, retail or residential for rent will not be feasible on the site because of either the location or size of the land. The site owners may also not have the commercial expertise or financial resources to develop the site themselves.
Landowners need to firstly see how much tax they will have to pay and then carefully examine their options to earn income from any development on their site.
For example, parking for rent may be the best solution in locations where people own cars but there is insufficient parking in their residences.
In many Japanese cities, it is common to see even small land sites being used for commercial parking for rent. The sites are covered in asphalt and have automatic parking systems usually run by a third party.
Although parking rates are much lower in Thailand than in Japan, developing car parking may be the easiest way to generate income on many sites with lowest level of capital outlay required from the owner.
A second alternative is that some owners will look at leasing out the site to a third party. Leasing land could be both for short term or long term but again there only certain locations where there will be development potential and demand from third party tenants.
For some landowners, finding additional revenue may simply be too hard and faced with the burden of the new tax, they may decide to sell.
After 2019, we believe there will be more sites available for sale and the mechanism of demand and supply will reduce the difference between asking prices and what purchasers are able and willing to pay.
Another question raised but not yet has the clear answer is the definition and interpretation of land usage especially agricultural land, which will be taxed at a lower rate than other land use. We will have to wait and see more details from supplementary laws which are expected in July 2019.
This is a special article written by Aliwassa Pathnadabutr, Managing Director of CBRE Thailand for The Nation’s Property dated 24 May 2019.