Posted on 19 Jan 2009
Measures to stimulate the property market will operate for only two years to encourage people to purchase housing this year, according to Fiscal Policy Office director-general Somchai Sujjapongse.
The cabinet will consider next Tuesday the measures, which will include a new personal income tax deduction on mortgage-loan principal payments. Currently, only interest payments of up to 100,000 baht per year can be deducted from taxes.
Dr Somchai declined to reveal the amount of principal that could be deducted, but insiders say it could be as high as 200,000 or 300,000 baht per year.
As the government is seeking an immediate impact on the industry this year, the principal payment would be deducted in full (but not over the ceiling) in the first year but only half in the second year.
Dr Somchai said the implementation of this measure would cost the government's tax collection "several billion baht", a level that would be manageable for the government and worthwhile given the importance of the property sector to the overall economy.
A source from the Revenue Department said the government would not set a ceiling for the value of property that could benefit from the measure but set a ceiling of principal instead.
Deputy finance minister Pruttichai Damrongrat said the deductible amount would be 100,000 baht of combined interest and principal.
Soonthorn Sathaporn, vice-president of the Housing Business Association, said if the government approved the 100,000-baht deduction of combined interest and principal, it would benefit buyers who bought a housing unit priced below three million baht, which would be a wide base.
The government earlier said it would raise the deduction for interest to 200,000 baht but was criticised that this would only benefit buyers of more expensive units priced from five to eight million baht.
Sopon Pornchokchai, managing director of the property consultant Agency for Real Estate Affairs (AREA), said the measure would have a psychological impact on the market but people could be right not to buy houses while the economy is sluggish.
He anticipated that 56,594 housing units will be launched this year (10% fewer than in 2008) worth around 145 billion baht (15% off last year's value).
Mr Pruttichai said the government wanted to implement measures that would help developers release completed units that could be transferred to buyers within the year.
Another discussed measure is establishing mortgage default insurance so buyers can get a home sooner through borrowing 100% of the price and not paying a down payment.
Dr Sopon disagreed with this proposal as he considers that commercial banks already have risk assessment systems and usually extend credit at 80% of the unit value.
"Buyers should pay some amount first to create the sense of ownership. If they cannot do that, they should not buy a house but rent it. Allowing 100% mortgage may cause buyers to lack fiscal discipline," he said.
Mr Soonthorn said the government should guarantee only 15-20% of the mortgage for financial institutions, which still need to assess risk themselves for the rest of the loan.
Issara Boonyoung, director of the real estate development committee of the Board of Trade of Thailand, said mortgage insurance should be only a tool to stimulate the market not a required mechanism in the process of all mortgage approvals.
