Real property valuation reform bill seen to enhance transparency

JC GELLIDON-UNSPLASH

AFTER the Tax Reform for Acceleration and Inclusion (TRAIN) Law and Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act comes Real Property Valuation and Assessment Reform Act (RPVARA) which forms “Package 3” of the Department of Finance’s (DoF) “Comprehensive Tax Reform Program,” (CTRP). The measure has been approved by both chambers of Congress and is awaiting President Marcos’ signature.

RPVARA is envisioned to promote the development of “a just, equitable, and efficient real property valuation system.” According to the Finance department, this reform measure will help improve tax collections without increasing tax rates while broadening the tax base used for property and related taxes. Among the measure’s key provisions is the development of a comprehensive and up-to-date electronic database of all real property transactions, the law will address the current opacity of the real estate market.

The DoF’s Bureau of Local Government Finance (BLGF) stated the following issues the RPVARA intends to address:

• Multiple, overlapping valuations resulting in wide disparities in values from various valuing agencies.

• Outdated valuations used for governmental purposes, especially for national (BIR’s Zonal Value and local taxation (Schedule of Market Value)

• Outdated valuations result in costs, foregone revenues: relatively disproportionately higher valuation when government pays compared to when it collects taxes.

• No single agency responsible for ensuring that property valuations are compliant with international valuation standards.

• Absence of a comprehensive real property electronic database to support regular property valuations

• Impacts of the possible increase and expected regular updating of the “single valuation base”

• Developers – Higher acquisition costs and annual taxes on land banking activities

• Property Owners – Higher real property taxes if the local government decides not to manage the assessment levels

• Investors – Investors will be affected from acquisition, operations to disposal with the higher transaction costs and updated real property taxes

During consultations in 2021, BLGF found out that nearly 40% of schedule of zonal values (BIR) and 60% of schedule of market values (LGU) are outdated with 46/120 revenue district offices (RDO) and 137/227 Local Government Units (LGUs) not revising their values in the last three years.

Due to the wide gap between the actual transaction price the zonal value of the BIR and the assessed value of the LGU, the practice of declaring a lower transaction price, closer to zonal value, has not been an uncommon practice in the Philippines.

PRIORITY BILLA priority legislation of President Ferdinand R. Marcos, Jr., senators unanimously approved Senate Bill No. 2386 or the RPVARA, sponsored by Senator Gatchalian.

Once signed into law, this would address the government’s outdated valuations and would unify the varied valuation systems and methodologies of different agencies conducting or requiring valuations such as Bureau of Internal Revenue (BIR), LGU through its Assessor’s Office, Department of Environment and Natural Resources (DENR) and government financial institutions.

This measure will try to address several issues, but here are the top provisions that will have the most impact:

• Unify Government Valuation – all government values for taxation will be through the LGU’s schedule of market values (SMV). The BIR’s zonal value will be retired once, the new SMV is fully implemented within two years.

• The SMV will then be updated every 3 years. With the regular updating of values, transaction costs will be higher. For real property taxes, the LGU has the prerogative to lower the tax rate and assessment level to minimize impact to their constituents.

• Transparency of Transactions – the registry of deeds is tasked to share all registered transactions. Furthermore, BIR, notaries public, officials issuing building permits, and the geodetic engineers conducting surveys within a locality should also share relevant real property transactions data regularly. The measure includes creation of Real Property Information System which will maintain an up-to-date electronic database of the sale, exchange, lease, mortgage, donation, transfer, and all other real property transactions and declaration in the country.

The new and updated values will take effect within two years after the law’s enactment and will be updated every 3 years.

While there may be early jitters with the proposed law, in the long run, RPVARA will have a positive impact on the real estate industry. Once enacted into law, this will ensure consistency in government valuation across the country, increase transparency in how property values are determined with the implementation of the national transaction registry, and promote efficiency with the streamlining of the valuation process as well as equity by ensuring fair property taxation.

The law will also elevate overall market confidence that is essential for a healthy real estate market which encourages investment and economic growth.

RPVARA AND A REBOUNDING PROPERTY MARKETAs Colliers Philippines previously highlighted, the property market is starting to rebound. Property values will most likely follow the trajectory of the sustained and projected growth of the Philippine economy.  Once enacted, the measure would ensure that the government’s new unified schedule of market values will be updated to be more reflective of the market.

While less residential projects were launched in Metro Manila for the entire 2023 and Q1 2024, we emphasize that developers have tweaked their expansion strategies and are now looking at major urban areas outside the confines of Metro Manila, Cebu, and Davao. Over the past two years, significant residential launches and completion in thriving business hubs such as Iloilo, Bacolod, Cagayan de Oro, Pampanga, Bulacan, and Tarlac, were also tracked.

While the enactment of the bill will likely raise the acquisition and disposal costs and real property taxes of all property players across the spectrum, from developers to investors and end-users, the implementation of the measure is expected to infuse much needed transparency to the current opacity of the Philippine real estate market and provide developers with a solid benchmark as they initiate their land banking efforts post-pandemic.

As the real estate market awaits with cautious optimism the president’s signature to finally enact the bill, the game-changing details will be in the law’s yet-to-be-proposed implementing rules and regulations (IRR) which all property players need to prudently scrutinize.

Paul Vincent Ramirez is senior director and head of Valuation Services at Colliers Philippines.