By Jessica J. Chiang & Yu-Wei Lin, Senior Partner & Associate of Formosan Brothers, Attorneys-at-Law

Starting from July 1, 2021, there are many important changes in regulations for real estate transactions begin to take effect. It affects many prongs: (a) the early stage before the sales: “mandatory filing of the purchase and sale contract for pre-sale housing for reference”; (b) after the buyer pays the deposit: “no agreement on reservations for the purpose of resale in the future” and “no transfer of red slips (the purchase of real estate reservation slip)”; and (c) after the contract is signed: “the system of actual price registration” and, at the time the real estate is resold: “House and Land Tax 2.0.” . The above are all new regulations that the builders, consignment company and consumers have to know to protect their rights when processing the real estate transactions.

“Filing the contract of pre-sale housing for reference” in the early stages of sales
In the preparatory stage of real estate sales, the builder shall declare the building location of the pre-sale housing, name of the project, sales location, sales period, numbers of households, and the contract of adhesion for the pre-sale house, and file in writing with the municipal, county (city) competent authority for reference. If the builder does not file such information with the competent authority for reference, the competent authority may impose a penalty from NT$30,000 to NT$150,000 with a specified time limit for rectification. Those who fail to make correction, a fine should be imposed by competent authority each time the violation occurs.

More importantly, relevant provisions in the contract of adhesion for pre-sale houses shall conform to the provisions of the “Mandatory and Prohibitory Provisions of Standard Contract for Pre-sale Housing” published by the Ministry of the Interior. If the contract of adhesion is inconsistent with the provisions of the “Mandatory and Prohibitory Provisions of Standard Contract for Pre-sale Housing,” the competent authority may impose a penalty from NT$60,000 to NT$300,000 according to the number of households or buildings.

After the buyer pays the deposit, “no agreement on reservations for the purpose of resale in the future”” and “no transfer of red slips (the purchase of real estate reservation slip)”
The so-called “red slip” is the common name for “the purchase of real estate reservation slip.” Base on the real estate transaction practices in the past, before signing a purchase and sale contract, a consumer would pay a deposit to a consignment company to place an order for a certain house, and the consignment company would confirm with the builder if they would agree to sell the house for the purchase price stated in the “purchase of real estate reservation slip.” Hence, a “purchase of real estate reservation slip” would often state that the builder reserves the right to sell or enter into an agreement of the purchase and sell of real estate. In addition, if the real estate market is robust, there would be consumers who invest in building projects by paying deposits to obtain red slips and, when transactions for the building projects becomes active and purchase prices rise, they would sell their red slips to make profits from the price differences.

However, starting July 1 of this year, those who are responsible for the sale of pre-sale houses or who entrust the real estate brokers to sell the pre-sale housing are no longer allowed to contain in the written contracts the clauses such as “the builder reserves the right to sell or the rights to signing contracts” or other matters that are unfavorable to the consumers after the receipt of deposits or similar item from the consumers. Also, consumers shall not sell or transfer their right in such a written reservation slip to a third party. This measure may stem the builder’s arbitrary adjustment of the price and investors’ speculation, and as a result protect the rights and interests of the consumers.

“Actual price registration” after the contract is signed
After the consumer signs a purchase and sale contract, the builder shall declare the real estate transaction information to the municipal, county (city) competent authority within 30 days from the date of signing the contract. If a real estate broker is entrusted to sell the pre-sale housing, the broker shall also declare the real estate transaction information to the competent authority within 30 days from the date of signing the contract, and it shall make a full disclosure of the street number, floor, and land number to prevent raising the selling price in subsequent transaction by concealing the actual transaction price of the house.

Moreover, real estate consignment brokers should note that the Ministry of the Interior announced in Letter No. Tai-Nei-Di-Zi No. 11002630481 that, for pre-sale house transactions completed by real estate consignment brokers prior to June 30, 2021 and the transaction information is not yet declared, a grace period for declaration will be granted respectively if, on July 1, 2021, the brokerage contract for the pre-sale house has expired or terminated for less than 30 days or otherwise has not yet expired or terminated. After such a period, the broker will be subject to the sanctions under Article 29 of the Real Estate Broking Management Act for failing to declare in accordance with the limits or declaring the incorrect information.

“House and Land Tax 2.0” when the real estate is resold

The Income Tax Act, i.e., the so-called House and Land Tax 2.0, was passed by the Legislative Yuan as a partial amendment, which is effective on July 1, 2021, is on the mission to prevent short-term speculation of real estate, uphold the justice in residence, restrain investors from profiting from short-term real estate transactions, prevent individuals from setting up profit-seeking enterprises to conduct short-term real estate transactions to qualify for lower tax rate, prevent companies from transferring stock ownership but in fact making real estate transactions and turning taxable property transaction income into tax-free stock transaction income, or, evade or reduce income taxes of the transaction by ways of filing the land price (as part of the total transaction of land and house) much higher than that of the government’s declared land price (much lower than the market value) to inflate the surplus coming from the value of land (Note: The transaction of real estate sells a full package of land and house. However, only the government’s declared land price and the price allocated to the house is taxable. Consequently, increasing the portion of value in land helps reduce the total taxable amount.) The key points of the new House and Land Tax 2.0 include: “extending the holding period from one year to two years for application of high tax rate for individual short-term real estate transactions,” “taxing profit-seeking enterprises the same way as individuals according to different tax rate based on the holding periods,” “characterizing the transactions of pre-sale houses and land, and, if certain conditions apply, transfer of shares or capital contribution, as real estate transactions” etc. The provisions are retroactive on all houses, land, pre-sale houses, and certain share ownership acquired after 2016.  

The aforementioned regulations of real estate transaction are important new topics for builders, consignment brokers, and consumers alike. In the future, when conducting real estate transactions, one should evaluate the circumstances carefully and enlist professional assistance from attorneys and accountants when necessary to protect one’s own rights.

(This article was published in the Expert’s Commentary Column of the Commercial Times：https://view.ctee.com.tw/legal/30901.html）

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