Rich landowners can be paupers overnight
OWNERS of prime land parcels in Bangkok were in recent years transformed into instant billionaires when prices shot up beyond Bt1 million a square wah.
Now, because of land tax, some may become instant paupers.
Stratospheric sums were paid in past years as speculators scrambled for what was billed “the last rare plots of land” in the central business district (CBD), recalls Origin CEO Peerapong Jaroon-Ek.
A 1,000-square wah or 2.5-rai plot, ideal for a high-rise condo project in downtown Silom or Sukhunvit was selling between Bt1million and Bt2 million per square wah. Now they are asking much less.
“Such owners,” says Mr Peerapong, “would have to pay land tax of at least Bt3 million every year when the new land tax takes effect next year.”
While high prices made owners billionaires on paper, they will now be subjected to a tax that is based on official land prices set by the Land Department.
If they cannot pay the amount, they will face serious penalties that can build up, and it could end very badly in the most delinquent cases.
The new tax of 0.03 per cent may not sound much but when prices are in the million baht plus range, they can be disastrous for people who inherited land but whose income does not match the new tax.
Such owners are not sleeping well these days, say industry sources. Pruksa Real Estate top executives this week concurred with Mr Peerapong’s view.
Mr Peerapong says the increase in land prices the past year was the result of price manipulation by powerful clans that own much of inner city land.
“Trading land is risky because the prices are determined by a few people who can raise prices and who have advanced information about matters such as the arrival of the new land tax.”
The unsuspecting retail buyer is the one left holding the baby.
Once the realities sink into the heads of speculators, there will be a scramble to offload.
Mr Peerapong, whose company was floated on the stock exchange last year, says people who benefit from the situation will be those who need to buy land at a reasonable level.
“Last year sellers were asking Bt1.5 million to Bt2 million a square wah in Thong Lor. That was out of reach of many developers. Now they are coming back to re-negotiate,” he adds.
Origin has a market capitalization of Bt6 billion and is seen as an upstart in a heavily contested market.
Mr Peerapong made his mark largely in the Outer Eastern Zone of Bearing that was then starting to be served by the BTS Skytrain five years ago.
Since listing, Origin has half a dozen new projects in the Northern fringes, all near areas linked to an expansion in the mass transit system.
Even as prime land prices fall, Mr Peerapong says the prospects of inner city living has been reduced by overbuilding, highly congested, overcrowded and daily traffic snarls – it is just too stressful and unhealthy.
“The better places to reside are in the city fringes,” he notes citing Rattanathibet in North Bangkok as having “drawn 100,000 families” in recent years.
He is careful about buying prime land because he sees through what some call a rigged market.
“The prices are controlled by old wealthy families.”
They dictate the levels and offload at the peak. Those who bought at high levels may need to sell back at much lower prices.
To be sure, 2016 is proving to be a challenging year for housing developers.
LPN, a top player in the affordable condo market said it is forced to hold off new launches.
Even with low interest rates and a more stable economy, buyers are closely evaluating purchases on big items such as homes.
Second homes, unused land and commercial buildings are among the real estate that face the internal revenue’s taxmen next year.
LPN has launched just two of its 10 new projects set for this year.
TOP: Mr Peerapong built up his company with a string of condominiums in Soi Bearing area with B-Loft 109 in Sukhumvit Soi 109 being one of them.
INSET: Mr Peerapong says powerful clans manipulated land prices over the past year.
By Cimi Suchontan