Govt for realty deals via registered brokers

The government is mulling over adopting a new policy on realty trading, which if endorsed, would require land and house owners to sell their property through registered realtors only.

Ministry of Finance (MoF), which has been raising serious concerns over undervaluation of property transactions, has pushed for introduction of the new mechanism, seeking registration of authorized property dealers.

“It will be something like stock brokers in the market. This will facilitate both buyers as well as sellers and also help us monitor and plug possible revenue leakage through undervaluation,” said Keshab Acharya, senior economic advisor at MoF.

Officials view such mandatory licensing would also help the government bring in large number of real estate brokers in the tax net and tap income tax revenue.

Brokerage in property deals is widely recognized and sellers even pay handsome commission, amounting to at least 5 percent of the transaction value, to the middlemen. However, as only a handful of them are formally registered, they are easily evading taxes.

“Worse part of the affairs running in the market is that brokers are neither accountable to sellers nor buyers. In most of the cases, buyers are left in the lurch in case the deal is not fair,” added Acharya.

If the new policy came into being, the authorized dealers will have to maintain database of the deals they make, ascertain whether or not the property being sold is legally clean and will not subject buyers to legal hassles.

That is not all. The dealers will have to keep track of value of property being sold in the area and share details of any change in value to the tax office. This responsibility is being pushed mainly to prevent widespread undervaluation in property transactions, something which has been seeping away revenue that capital gain tax (CGT) should have contributed to the national treasury.

Records of land tax offices in the Kathmandu Valley show that annual transactions of land and housing in the Valley are worth well over Rs 100 billion. “As huge undervaluation prevails in property transactions, we believe this is not even half of the actual transaction,” said an official at the Department of Land Revenue and Management.

The department estimates that transaction value declared at present averages only half of what the buyers actually pay for. The motives behind undervaluation are to evade CGT (by sellers) and to escape from the need of disclosing sources of income (by buyers).

Currently, the government charges 10 percent CGT on commercial transactions (made within five years of owning land or property) and five percent on non-commercial transactions (made after five years of holding the property). Likewise, buyers of land worth above Rs 3 million and land and house worth above Rs 5 million needs to certify that money with which s/he is buying the property is not illegal.

MoF officials viewed that entrusting the responsibility of tracking property valuation to authorized brokers will help check widespread leakage of CGT. “Also, making the brokers accountable for ensuring legality of the property being purchased will safeguard buyers´ investment,” said Acharya.

In the absence of such accountability, it is estimated that some one-fifth of buyers face legal hassles because of sellers´ family conflict. The new policy, hence, is believed to substantially cut the workload of courts as well, said officials.

Source:myrepublica

1Ropani