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Why will house prices rise with lower VAT

The measure to reduce VAT to 5% for homes worth up to 140,000 euros would impact the prices of new homes that are already approaching the new ceiling. The extension of the reduced VAT measure will take place at the beginning of 2021, but we can already make some estimates regarding the evolution of prices on the residential segment.

Currently, the reduced VAT rate applies to social constructions, which can be houses or apartments, with an area of ​​up to 120 square meters and a value of up to 450,000 lei (approximately 92,400 euros). The measure worked in tandem with the “First House” program, where in addition to the reduced VAT, a minimum advance of 5% was also applied for the bank loan for the purchase of a home.

In the meantime, the “New House” program was approved, where the ceiling for the value of eligible housing was increased to 140,000 euros, the equivalent in lei. Currently, due to the new VAT threshold, 5% VAT is paid for the purchase of a house with this price.

Romanian parliamentarians have approved a bill that lowers VAT to 5% on the tax base for the delivery of housing as part of social policy, including the land on which they are built. The initiators of the project say that the measure is necessary given the evolution of the leu / euro exchange rate, the environment of prices in the real estate sector and the current economic and social realities.

The VAT reduction project refers to homes that have a usable area of ​​maximum 120 sq m, excluding household annexes, whose value, including the land on which they are built, does not exceed the amount of 140,000 euros, equivalent to lei, excluding value added tax . The measure is to be applied only to transactions carried out by natural persons.

According to Deloitte consultants, this measure would come after the elimination, in 2019, of the surface limit for the lands on which the individual houses are built (in order to benefit from the reduced quota) and the condition imposed on the client not to have benefited from the application of the 5% quota. to a previous purchase.

Price adjustments around the new ceiling

Price adjustments in line with the new ceiling will not occur suddenly, but there is a small window of opportunity for those now looking for a home. In the current context, booking or purchasing an apartment right from the design stage is the most feasible option for preserving the price and obtaining a higher profit amid rising price pressures.

However, not only the reduction of VAT to 5% for homes up to 140,000 euros will put upward pressure on prices. The “new home” could generate a similar phenomenon, and developers will update their pricing policy to reflect these two critical changes for the entire residential industry. For the Boreal Plus Project, Impact Developer & Contractor maintains a transparency of the price sequence, starting with the low price during the launch period, continuing with the advantageous pre-sale price, and at the end, the price will be the list one.

Reduced VAT on real estate, contribution to the recovery of the economy

A 5% VAT for higher value homes will generate added value throughout the chain from builders to suppliers of building materials, architects, furniture manufacturers or interior design specialists.

The decrease in VAT will give a boost to the real estate sector, which has continued its development activity despite the challenges posed by the health crisis. The tax facility will mobilize more industries and maintain jobs and local production of various raw materials.

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