Fri 16 Nov 2018

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Syrian Real-estate Sector: The Power to Restore Cash Reserve

Children playing in Barzeh neighborhood, Damascus – April 22, 2017 (Lens Young Deimashqi)

Children playing in Barzeh neighborhood, Damascus – April 22, 2017 (Lens Young Deimashqi)

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Under the Syrian official efforts to bring money into the state’s treasury through vital files, the Syrian Central Bank started to follow a new plan, including the re-pricing of real estate based on new indicators, the supervision of which is assigned to the Bank itself, while the Ministry of Finance works on amending the sales law to increase the value of real estate taxes.

The Syrian regime’s government has tried to revive the country’s treasury after the devaluation of the Syrian pound in the exchange market and the depletion of the Syrian Central Bank’s balance of foreign currency to reach 700 million dollars against 20 billion before the crisis, according to data published by the World Bank in April 2016.

These attempts have been clear in the behavior of the Syrian Central Bank, which intervened more than once in the exchange rate of the Syrian pound, prompting citizens to sell foreign currency in their possession to Syrian banks or exchange companies, or the government’s attempts to benefit from the fees imposed in dollar, such as the fees (consular fee) of obtaining or renewing a passport that Syrians abroad are supposed to pay, which may amount to $ 800 for an urgent passport.

 

The Central Prices Real-estate

Finally, the Central Bank announced that it is working on the development of indicators, which contribute to the “re-pricing” of real estate of all kinds, and the governmental “Tishreen” newspaper, on July 19, reported that the Bank has issued a generalization to all Syrian banks to assign experts to assess real estate.

The Bank designed these experts’ work mechanism, through developing a form of real estate appraisal, described as “comprehensive,” especially as it takes into account the administrative area, and the real estate area of the property, to determine the asset’s price.

The administrative area is the area which the property is administratively classified as a part of(districts), which is subject to the divisions of the governorate or municipalities and is often newly constructed. The real estate area is the area to which the property belonged, in terms of location, when it was an agricultural land (pre-construction, such as the “Shagour Groves” area.

The Central Bank requires real estate experts to fill these forms on the basis of the price per meter, ownership and type of property (residential or commercial), indicating that the prices present in the banks’ forms are inaccurate.

The evaluation forms also include the maximum price per square meter and the minimum, as well as the distance of the property from the center of vital activity, and the type of ownership, full or common.

“Since the country is emerging from the war, the economic activity will be confined to the real estate sector, and therefore the regime is trying to take advantage of this opportunity to increase its financial resources,” Younes al-Karim, an economic researcher, told Enab Baladi, explaining the Central Bank’s step.

 

Is the Intervention of the Central Legal?

“It is legally acknowledged that the central bank is concerned with monetary policies, and therefore its tasks are limited to liquidity, exchange rate and cash management, but the financial management is the responsibility of the Ministry of Finance,” al-Karim said.

The  researcher believes that the  Central’s intervention in the “pricing” of real estate is wrong, because the determination of prices of real estate is not among its duties, but at the same time he considers that this action aims to benefit from the taxes that will result from these properties in the event of sale or any action in relation to its ownership, for this increases the Central’s monetary mass and restores its cash reserves.

In addition to the fact that the Central Bank, with its various banking, financial and insurance entities, has a lot of mortgages, so re-evaluation of real estate towards re-pricing paves the way to raise these prices and restore a large part of the financial losses suffered by the Syrian regime in the past seven years.

 

New Appraisals: What is the Destiny of the “Financial Record”

The “financial record” determines the identity of the property in the financial departments and has always been adopted in the sale and purchase transactions, in order to determine the taxes and fees to be met.

Each property has a financial record, kept by the financial directorate it follows, where its value is determined by real estate experts, in addition to its real estate type.

These records are years old, for the estimates date back to the time of the record’s creation at the concerned financial directorate, which means the date of these properties’ construction.

The Minister of Finance Mamoun Hamdan made a statement about a proposed real estate sales’ tax bill, based on tax assessment according to the “real value” of the property (the price of the real estate market), not according to the financial assessment registered by the financial directorate (financial record), as the local newspaper of “al-Watan” has quoted on 24 June 2018.

According to the proposed bill, the tax rate is reduced from 25% of the residential properties’ value assessed in 1985 and beyond, as recorded by the financial directorate, and from 15% of the value of properties assessed in 1986 and beyond, to become 1% of the currently acknowledged value of the property.

Although this law means circumventing the few taxes on old financial records that are still valued according to the prices that prevailed in period of the evaluation process, and thus obtaining a higher tax and automatically raising property prices, Hamdan said that the bill would not raise property prices.

 

Large Companies that Might Benefit of the Bill

Al-Karim said that the real estate sales bill, which Hamdan talked about and that is currently presented to the People’s Council for approval, contains an important gap, which is the exception of large real estate companies such as “Sham Holding” and “Syria Holding” of the bill, the text of which says: “The provisions of this law do not apply to real estate public entities and licensed real estate development projects, in accordance with the provisions of Law No. 15 of 2008.”

The aim of this exception is to push these companies towards new and huge profits, according to the economic researcher, by raising the taxes of real estate owned by ordinary citizens, which do not go to these companies, thus leading to an increase in their prices and a weaker demand on buying them.

Not obliging these companies of paying taxes on properties they own in the event of sale will make their prices lower than that of the market, what will trigger people to buy them, in addition to offering these companies a “gap” for tax evasion. Accordingly, the regime will be dependent only on ordinary citizens to meet the high taxes.
The economic and financial policies adopted by the Syrian regime are classified under the so-called “reconstruction plan,” the cost of which the United Nations estimated with about $ 400 billion, and about the duration of which, mid-April, Bashar al-Assad, the head of the Syrian regime, said “it requires about ten to 15 years.”

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