Informal contracts risk bite buyers

Most property buyers are using informal contracts that fall short of transferring full legal ownership and fail to stand up in court, a senior official from the Internal Revenue Department (IRD) told The Myanmar Times.

A variety of property purchases – including those of apartments and condominiums – are usually made using informal contracts. But this practice risks hurting buyers if they are ever required to prove ownership in court, according to the official, who works at the IRD’s tax service office.

Although buyers and sellers of apartments do often use sales contracts, only a small proportion go through the requisite steps to legally transfer ownership. In many court cases, buyers have failed to prove ownership for this reason.

In every property transaction – even those on land that the buyer already owns – the buyer has to go through several steps to be granted legal ownership, the official said.

“But many of them don’t realise this,” he said. “If they ever face trial over the question of ownership they could lose, simply because they used an informal contract.”

Buyers have to file a raft of documents, including a list of their household, a copy of their identification card, property photos, and the original contract made between the buyer and the seller. The documentation is filed to a regional appraisal team, which values the property.

The buyer’s next step is to pay stamp duty and income tax to the relevant township tax department, and then register proof of tax payment. Only then does the buyer have the documentation necessary to register full legal ownership at the district municipal office.

“We’re urging them [buyers] to legalise their property by paying taxes,” the official said. State revenues have dropped as fewer people go through the legal channels for transferring ownership.

People who bought property years ago using an informal contract and now want to legally register ownership are required to pay the same income tax and stamp duties as new buyers. But there can be additional challenges. Sellers sometimes demand a fee to provide a signature to a buyer who bought property years ago,and is now seeking to register legal ownership.

“So we would like to suggest that buyers register legal ownership shortly after they purchase a property,” the official said.

But most apartment owners buy or sell their property using the signature of the ultimate landowner. Few are willing go through the process of registering a change in the legal owner, said U Than Oo vice chair of the Myanmar Real Estate Services Association.

Legislation that would clarify ownership and allow potential buyers to take out mortgages on apartments would be welcome steps. But a long delayed Condominium Law seems unlikely to pass any time soon. The lack of available financing for buyers contributes to the unwillingness to apply for legal ownership and pay the required taxes, U Than Oo said.

“Apartments owned by construction companies or landlords are being bought by people just giving the company or the landlord money,” he said.

As of April last year, the lowest income tax rate of 3 percent applies to buyers of properties worth up to K100 million, rising to 5pc on deals up to K500 million and 10pc on trades up to K1 billion.

“For a property worth K300 million, for example, the buyer has to pay 3pc on the first K100 million and then 5pc on the next K200 million,” the official said. “In short, the buyer has to pay K13 milion for a transaction worth K300 million.”

Transactions worth up to K1.5 billion are charged 20pc, with a ceiling of 30pc for properties valued at more than K1.5 billion. Buyers must also pay a stamp duty of 5pc in Yangon and 3pc elsewhere in the country. Sellers are supposed to pay a flat 10pc rate.

Source: Myanmar Times

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