Promoting Housing for All

In her 2008 SONA, GMA asked Congress to allow SSS and GSIS to increase the allowable amount of loans for housing from the current 10% limit. This is to address here earlier promise of housing for everyone.

In her previous SONAs, she talked about housing in terms of increasing the amount of loans provided by Pag-ibig, the state owned housing lending corporation. She also mentioned the number of housing units constructed and distributed by the National Housing Authority.

The government’s approach to housing is archaic, the state directly involved in the production of housing units or the provision of housing loans.  Except for the city-states of Singapore and Hong Kong where you can literally count the population, direct provision of housing by the government typically lead to disastrous consequences.

If the government intends to promote housing, the government should instead cut taxes that impede the housing market. This includes the 6% Capital Gains Tax (CGT), which is a misnomer.  In other countries the CGT is imposed on the increase in property values or capital gains. Only in the Philippines that the capital “GAINS” tax is imposed on the entire selling price.

Aside from the CGT, the seller also has to pay 5% real estate agent’s commission, 1.5% documentary stamp tax and legal fees. The buyer, on the other hand, pays for the local transfer tax (0.5% - 0.75%), registration and notarial fees and his lawyer.

Because of the prohibitive costs, a prospective seller is discouraged from selling the property unless the actual gains are enough to cover all the taxes involved in selling the property. For instance, if the value of your property rose by 15% but upon selling it you have to pay around 13% for taxes and commission, then you are left with only 2% net income. Because property owners are discouraged from selling their property, the enormous housing deficit worsens, leading to more expensive properties.  

With the costs of buying and selling properties in the Philippines among the highest in Asia, it is no wonder why there are so many homelessness people and squatters here.

Removing or reducing the 6% CGT would not lead to much tax loss anyway. According to a study in 2001, sellers report a lower selling price (by as much as 2 times lower the actual selling price) to minimize the CGT.  The resulting transparency in real estate transactions is more than enough to compensate from the minuscule tax loss. Moreover, if sellers report the real price of the property, the government will be able to collect more property taxes which are more sustainable.

There are other measures needed to promote housing including simplifying the property registration process. In the Philippines, you have to deal with 3 government offices for registration (the City or Municipal Office, the BIR and the Land Registration Authority). The process is completed in 3 months to a year depending on how much you are willing to produce for grease money. In New Zealand, you deal with only one office and the registration process is completed in two days.

To promote housing, abolish the 6% CAPITAL GAINS TAX!

P.S.
After an eternity, the proposed bill creating The Land Registration Authority passed the committee level in the House of Representatives. I wonder how many eternities we have to wait before it is enacted into a law.