Tax revenue points to a better future for Cambodian property

via CAAI

Monday, 24 January 2011 15:00 Steve Finch

A REPORTED 60 percent rise in taxes generated from property transactions in 2010 last week provided the first indication the sector may at last be in recovery.

Collecting nearly US$20 million last year, officials at the Ministry of Land Management, Urban Planning and Construction pointed to a rise in transaction activity as the reason behind a sharp rise on the $12.16 million collected in 2009.

However, the property market will no doubt remain cautious. Anecdotally, the Kingdom’s main estate agents, including Bonna Realty and CB Richard Ellis, have been reluctant to confirm a rebound in the market pointing to still low levels of selling and leasing.

So although the government has claimed an increase in market activity was responsible for the tax rise, this huge leap does not seem to correspond to anecdotal evidence from the private sector.

“We did not see a 60 percent increase in activity last year compared to 2009,” Daniel Parkes, country manager of CBRE, told The Post yesterday.

This suggests tax enforcement may have been more stringent in relation to the transfer, leasing and selling of property, a trend witnessed in the collection of other taxes in recent years as the government has aimed to raise state revenues to help fund rising budgetary requirements.

Still, even if the market clearly did not witness a 60 percent rise in buying, selling and leasing last year, this sharp increase in tax derived from the market is good news on multiple counts.

Firstly, this huge increase must surely represent a rise in activity in the market to some degree, most likely combined with a rise in tax enforcement, suggesting the property sector is starting to rebound from the downturn that started around the second quarter of 2008.

In terms of government revenues, the rise in tax points to greater government enforcement and therefore intervention which will better serve both the property sector and wider economy in the longer term.

The pre-crisis market was plagued by gung-ho buying and selling that led to serious overheating in the market.

Surely, the frantic land sales, as seen in 2008, will be hampered to a degree if property taxes are enforced on a larger percentage of transactions meaning profits are squeezed.

In addition to the new property tax that came into force at the end of last year, which allocates 0.1 percent of a property’s value to the state, greater enforcement will mean the property sector should start to pull its weight in terms of generating government revenues.

In the short term, taxes may only further slow the property recovery but over the longer term such measures will help to stabilise what was previously a volatile sector.