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City Hall | Haddad, The Tax Man

minha_casa

Our beloved Avenue of the Owls is undergoing an accelerating rate of rezoning — a fancy supermarket  with a café that makes excellent pastéis and an office and retail property just around the corner.

They even put in asphalt. So much for the medieval charm of our paralelipípedos. I suppose we had better pay attention.

Source:  Carta Maior.

Topic: Housing Tax, Urban Renewal

In the next few days, São Paulo city hall will begin notifying the owners of 150 unused and underused  properties in the expanded downtown area of São Paulo about PEUC, a tax incentive plan that provides for Compulsory Parcelization, Construction and Use of real properties.

The measure, included in the Strategic Master Plan as a means of guaranteeing the socially valuable use of private property, serves as an ultimatum to landlords: If their properties are vacant or the built-up area they occupy falls short of the target set for each zone of the city, they will be obliged to present a plan within 12 months to complete construction projects and put them to use, followed by a five-year limit to complete them.

If they still fail to do so, the city may apply the IPTU property tax with progressive annual increases.

In extreme cases, in which landowners refuse to put buildings and lots in the downtown area to use in the next five years, the city may even  expropriate them, paying the owners off with municipal bonds.

The goal of the government of Fernando Haddad (PT) is to intervene in order to prevent real estate speculation — it is a common practice to “sit on” — hold in reserve — buildings and vacant lots in order to manipulate property values in various areas of the city, guaranteeing maximum profit to the projects of the speculator with no concern for the impact on urban and environmental planning in the affected neighborhoods.

Rede Brasil Atual adds:

The government also expects to confront publicity campaigns contrary to the application of PEUC and the progressive application of the IPTU, which affect the dominant economic interests of the city.

Where would these campaigns come from? What trade association would bankroll them? SCIESP? Probably SECOVI, “The Housing Syndicate Since 1946.”

In this regard, the municipal housing secretary said that the success of the policy will be measured, for the most part, when it is not necessary to apply it and IPTU is stable.

“There is a risk of this measure being understood or portrayed as an IPTU tax hike, which is not the issue, just as it is not the mayor’s intention to increase IPTU by means of PEUC. We expect that as soon as the notifications are received, landlords will take the required steps and IPTU will not have to be raised. If we see no increase in tax income, this policy will have succeeded,” he argued. “Is this a managerial offensive against real estate speculation? We have to make a value judgment. Is speculation positive or negative? It is negative, so there is no ‘insult.’ Opposing bad faith is a virtue,” he concluded.

Grupo Abril’s weekly Exame — it seems to maintain its journalistic integrity amid the general bedlam on the shores of the Pinheiros River —  has weighed in on the speculation question as well.

It is helpful to know beforehand that the mayor, Kassab, listed “real estate broker” and “civil engineer” as his primary occupation. (His brothers were named to management positions in the rail and bus consortiums, as I recall).

I was surprised no one mentioned it at the time, but as Kassab was the junior partner in the Serra government, the media  seemed to go easy on him — until the day he physically assaulted a protester on live TV.

After that, there was a palpable effort to  erase that image from our minds, to such an extent that in the most recent elections, Haddad campaigned  with a large, cute, parade balloon with a happy twinkle in its eyes.

But I digress. Where was I? Exame.  It provides a tidy history of urban planning in the city center. I translate an excerpt, if I get a moment.

São Paulo – Whenever the recent hike in property values in São Paulo is mentioned, any number of explanations are offered. Most commonly heard are economic growth, rising wages, the expansion of bank debit and a trend toward recovery of prices after years of stagnation. Representatives of the real estate sectore, however, cite an additional ingredient that is little commented. The laws deals withh the usage of urban parcels approved by various mayors in the last several decades provided no incentives for the use of the best plots of land.  Scarcety left many landlords in an advantageous position. They began to charge exorbitant prices for their land. To give you an idea, a site that historically cost between  15% and 25% of the total expenses of an enterprise now represents between 30% and 35%, according to João da Rocha Lima Jr., of the Real Estate Nucleus of Poli-USP. Núcleo de Real Estate da Poli-USP. In areas such as Faria Lima Avenue, where there are essentially no properties on the market, these percentages can reach 50% or 60% to the total cost of the development. The jump in costs are, naturally, passed on to the consumer. 

The idea of restricting the occupation of lots in São Paulo was born in the 1970s when Olavo Egydio Setubal was mayor. During his administration, it was firmly established that for the most part, different areas of the city, a works contractor could only obtain approval of City Hall for real estate developments if these occupied at most four times the size of the parcel. This meant that on a plot of land measuring 10,000 square meters, for example, the building erected there was limited to 40,000 square meters of usable space.

At the beginning of the last decade, Mayor Marta Suplicy went further. Her master plan created various restrictions so that improvements to a plot of land could reach four times the area of the plot.

In most of the city, this limit had been set at one or two times the area. To exceed this limit, it would be necessary to buy licenses from the city — either through grants or, in some areas, using the Cepacs (Certificates of Added Value of Construction) formula.

The Exame article is very, very thorough, but a paragraph that caught my eye was the announcement of the Nova Luz program for cleaning up the historic downtown area. See

We return to 2011.

The city’s second strategy is to recover degraded areas of the city. Its principals hopes are  riding on Project Nova Luz — New Light, with a pun on the Luz train station — which provides for the expropriation of a large portion of São Paulo referred to today as Crack City. Once the existing structures are demolished, public works projects would be developed on terms calculated to attract large corporations and the middle class to an area now dominated by drug addicts and homeless persons living in “vertical shantytowns.” The problem is that since the administration of Jânio Quadros, in the 1980s, the city was never again agile enough to expropriate large areas. Indemnification payments for current residents were delayed and often challenged in the courts. As for the companies attracted by fiscal incentive laws and willing to set up shop in the area, there is nothing to do but wait.