Taxes on real estate would hurt the market

Increasing investment factor benefits landlords

The Cabinet is currently studying a number of tax measures to be imposed on the real estate sector. Among the measures being proposed is increasing the real estate investment factor by ten percent.

If the measure is passed, land on which only ten stories could be built would be permitted one additional floor.

Real estate experts have criticized the proposal, saying it would hurt the sector. “This will definitely raise land prices which benefits land owners not developers, and the end user will ultimately be harmed because apartment prices will also rise,” said Mohamad Sinno, CEO of Vertica Properties. “The Cabinet should also study the impact of this proposal on urban planning and the skyline of the city before approving it,” said Sinno. He said that increasing the real estate investment factor poses further risk to an already ailing infrastructure, and will create more problems with regards to parking.

Walid Moussa, CEO of Property Brokerage and Management (PBM), said the tax would only affect the city skyline but prices of apartments will not rise if the new measure is adopted: “This will create more supply in the the real estate sector, but it will not cause prices to go down as supply of land in Beirut is already limited and any new supply will be absorbed.”

Moussa, who is also secretary general of the Real Estate Association of Lebanon (REAL), said prices of large apartments could see a decline, but that smaller size apartments under 200 square meters in area, would still see big demand. “The market can afford more supply in this segment,” he said.

Moussa said that those who already bought lands will benefit from the measure because the value of their land would go up after the investment factor is increased.

Raising the investment factor would bring in some $1.6 billion in revenue to the Treasury.

The Cabinet also proposed raising real estate registration fees, as well as the taxes on real estate profits. “Raising the registration charges will hurt the sector, because it will decrease consumer appetite to buy apartments,” he said.

Moussa said higher taxes on real estate profits will raise property prices: “Once the tax on profits is raised, investors will directly demand higher prices to maintain their profit margin. This measure could also push investors away.”