Vietnam mulls overhaul of property transfer tax, sparks fears of stalling recovery

Business Times

25-07-2025

[HO CHI MINH CITY] Vietnam's Ministry of Finance has unveiled a sweeping proposal to overhaul the way personal income tax is applied to real estate transactions – replacing the current flat 2 per cent levy on selling price with higher percentages, based on how long the property is held, or 20 per cent of the actual capital gains per transaction.
The ministry states that the change is necessary to plug tax loopholes, reduce speculation, and create a more equitable tax regime. However, industry stakeholders warn that the shift could dampen liquidity, inflate prices for real homebuyers, and further weaken an already-fragile property market.
Under the proposal, individuals selling real estate would be taxed 20 per cent on the net profit, which is the difference between the selling price and the original purchase price, minus related costs.
In cases where the purchase price or expenses cannot be verified, tax would be applied to the gross sale value, based on how long the property was held. That marks a sharp increase from the current flat 2 per cent tax on the selling price to as much as 10 per cent for properties owned for less than two years.
The ministry says the new model better reflects true earnings and is modelled after systems used in Singapore, Taiwan and Malaysia, where tax rates also scale with holding periods to deter speculative flipping.
In Singapore, for instance, residential properties resold within a year are subject to a 100 per cent tax on the price gain. In Malaysia, the Real Property Gains Tax imposes rates of up to 30 per cent on properties sold within three years.
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The latest shift in the rule, outlined in the draft of the revised Personal Income Tax Law, is now open for public consultation until the end of this month and is expected to go before the National Assembly for review and approval this October.
Huynh Thi Huong Giang, head of research at property advisory firm Savills in Ho Chi Minh City, said: 'From my perspective, applying this tax model under current conditions without adequate infrastructure would be very challenging.'
She noted that Vietnam's property data system remains fragmented, with transfer prices largely based on declared values in sales agreements, and that actual transaction prices are often higher.
'(We expect) a negative impact on market liquidity, potentially slowing down transaction processes, causing tax collection bottlenecks, and increasing the risk of disputes and legal conflicts,' she noted.
Sellers may also respond to higher taxes by raising housing prices to maintain their profit margins, potentially making homes less affordable for genuine buyers, Giang added.
Nguyen Thi Thu Xuan, a Hanoi-based investor who frequently buys and resells homes with a group of friends, believes that speculative investing will continue both in undervalued properties and amid rising market prices due to a supply crunch.
'It won't hurt us as much as it hurts end-buyers who actually need a home,' she said, noting that additional tax costs could push prices even higher.
Xuan added that in practice, if sale prices are not truthfully declared, a 10 per cent or 20 per cent tax is mostly symbolic.
'It doesn't mean higher tax costs,' she said. 'In fact, steeper rates might just drive more people to exploit loopholes and under-report transactions.'
The finance ministry appears aware of the challenges in applying the new property tax rule. In a response to local media reports, officials stressed the need for a gradual transition with a suitable road map, tied to the development of land and housing policies, data infrastructure and legal frameworks for tracking and taxing property profits.
Problematic timing
Dinh Minh Tuan, southern regional director at PropertyGuru Vietnam, which owns the country's largest real estate portal Batdongsan.com.vn, said the timing of applying the new rule was problematic.
'While the policy aims to 'reward holders, penalise flippers,' it also raises concerns about timing and broader market impact, especially as the real estate sector remains sluggish,' he stated in a commentary. 'The proposal may prove more harmful than beneficial.'
Vietnam's real estate market plunged into a slump in 2022 and 2023, with supply freezing up, liquidity drying out, and many housing projects stalling. Transactions started picking up in 2024 and 2025, showing signs of market recovery following a series of regulatory reforms.
However, property prices have been soaring exponentially due to supply-demand imbalance and speculative buying, making them out of reach for most residents. In major urban centres such as Hanoi and Ho Chi Minh City, it now takes several decades of the disposable income of a family at the median to purchase an apartment.
'We expect residential prices to continue their upward trajectory (for the rest of the year), largely driven by the launch of high-end projects and ongoing supply constraints,' noted Savills' Giang.
A Batdongsan.com.vn's survey of more than 1,000 users found that 59 per cent bought real estate primarily for investment, not for personal use, and many were planning to sell within the year.
Tuan noted that short-term investors now make up a significant share of the market, especially in segments of land plots and high-end condominiums.
'A 10 per cent tax would significantly eat into profit margins, reducing investment appeal and potentially pushing small investors out, further dampening market liquidity,' he stated.
He believes this tax hike could act as an untimely brake, stalling the recovery momentum and causing ripple effects in related sectors of the economy.
The Vietnamese government is aiming for 8.3 to 8.5 per cent economic growth this year, from 7.1 per cent last year, to create a foundation for double-digit growth in the 2026-2030 period.
Prime Minister Pham Minh Chinh recently emphasised that Vietnam must revitalise its traditional growth engines – domestic consumption, exports and investment – while also embracing new drivers such as green growth and the digital economy.
With US tariff hikes weighing on trade, experts say that a rebound in the real estate market and increased infrastructure spending would be crucial to boosting consumer confidence in the country's economy, where household consumption contributes to about 60 per cent of the gross domestic product.