Market-based property valuation seen to boost revenues but raise costs

By Justine Irish D. Tabile, Senior Reporter

THE PLANNED shift to a market value-based property valuation system could boost government revenues and improve investor confidence, though analysts warned it could also lead to higher property-related taxes and infrastructure costs.

Their comments came as the Bureau of Internal Revenue (BIR) prepares to implement a market-based valuation system by 2028, replacing outdated zonal and assessed values used in taxation and property transactions.

According to the BIR, the reform aims to make property taxes fairer by shifting to a system that values properties based on market prices through mass appraisal, standardized valuation methods, and stronger coordination between national and local governments.

Benedicta Du-Baladad, founding partner and chief executive officer of BDB Law, said the proposal falls under the National Land Valuation Reform included in Package 3 of the Comprehensive Tax Reform Program.

“The main implication is that valuation would be professionally managed by a single office under the Department of Finance, making it more objective and market-based,” she told BusinessWorld in a Viber message.

“It will insulate the process of valuation from the influence of politics in the case of local government units (LGUs) and conflicts of interest in the case of BIR. This valuation will be uniformly applied to all real property transactions, whether by LGU or BIR,” she added.

Ms. Du-Baladad said that the impact on government revenues would depend on property valuations.

“Some may increase, but others may decrease since revenue is a function of the value of the property,” she added. “What is important, though, is to be paying taxes based on the correct value of the property.”

However, Ms. Du-Baladad said the government could face challenges in setting up the office and hiring valuation experts.

She also warned of possible “resistance from local politicians who may be using lower property valuation for votes.”

Meanwhile, Jose Enrique “Sonny” A. Africa, executive director of the think tank IBON Foundation, described the proposed change as a “very sound” principle, noting that property taxes are generally less distortionary than indirect consumption taxes.

“A functioning real property valuation system is among the potentially most productive and least distortionary taxes available, compared to regressive indirect consumption taxes,” he told BusinessWorld via Viber.

Mr. Africa said property taxation could generate additional revenues by targeting accumulated wealth and landholdings.

“Property taxation soundly targets accumulated wealth and landholdings and could potentially generate additional tens of billions of pesos annually, although we have not tried making more rigorous estimates,” he added.

However, Mr. Africa warned that weak enforcement could disproportionately burden middle-class and small property owners.

“The problem will be in the practice where large corporations, real estate developers, politicians, and politically connected families might find ways to subvert enforcement,” he said.

“Unfortunately, persistent unresolved corruption reaching up to the highest levels of government does not give confidence in just and fair implementation,” he added.

HIGHER PRICES
Meanwhile, analysts warned that aligning property values with market prices could raise transaction taxes and increase costs for buyers, developers, and infrastructure projects.

Nigel Paul C. Villarete, a senior adviser on public-private partnerships at Libra Konsult, Inc., said the reform is likely to increase infrastructure project costs.

“There will be both positive and negative effects but mostly leaning on the negative side as prevailing prices almost always are higher than recorded ones,” he said in a Viber message.

However, Mr. Villarete said the reform could improve the assessment of actual rates of return and make public-private partnership projects more reliable.

“In actuality, it would provide a better assessment tool on the actual rates of return and will thus make public-private partnership projects more reliable than before and thus will improve the decision-making process, making it faster and more accurate,” he added.

Savills Philippines said while the reform addresses a structural gap in valuation, it may negatively affect market liquidity as “both investors and end users absorb higher costs in an already challenging economic environment.”

“The immediate impact is quite clear, which will bring higher transaction-related taxes,” Savills Philippines’ Chief Operating Officer Rosario “Cha” P. Carbonell and Research and Marketing Head Dino Mari G. Palanca told BusinessWorld.

“With capital gains tax and documentary stamp tax now based on higher values, both buyers and sellers will feel the increase in costs,” they added.

Savills Philippines also said the reform could affect investors operating on tighter margins.

“In the near term, this is likely to slow transaction activity, as higher taxes increase the overall cost of buying and selling,” the company executives said, citing more cautious buyers.

“It also raises the barrier to entry, particularly for first-time buyers and smaller investors who are already navigating elevated interest rates and broader cost pressures.”

Savills Philippines said the country’s buyer base largely consists of investors and regular Filipino homebuyers.

“Both segments are already facing headwinds from inflation impacting disposable income, to higher borrowing costs due to rising interest rates. Adding high transaction taxes on top of these conditions does little to support market liquidity,” the executives said.

“Instead, it may further discourage discretionary purchases, delay investment decisions, and reduce overall market participation.”

In the long term, however, Savills Philippines said the reformed valuation system could support a more transparent and credible property sector, leveling the playing field for local and institutional investors.

“However, the transition will need to be managed carefully. A more phased and well-communicated rollout, alongside measures that support affordability and investment activity, will be important to ensure the policy does not unintentionally dampen market momentum,” Savills Philippines said.