The unification of VAT rates will raise the price of new apartments by hundreds of thousands

Prague - The unification of value-added tax rates may increase the prices of new apartments and slightly dampen the mildly reviving demand for housing. The price of a new apartment will rise by hundreds of thousands of crowns. In a recent survey by ČTK, most of the contacted builders and real estate experts agreed on this. The tax change planned by the government aims to secure funds for pension reform.
    For an average new apartment in Prague, people currently pay a ten percent VAT rate amounting to around 360,000 crowns, said ČTK analyst Pavel Smolka from the consulting firm King Sturge. "After a possible unification of VAT at 20 percent, it will be 720,000 crowns. That is quite a significant difference for the average buyer, and consequently it will further paralyze the sale of new projects, construction, and employment in general," he warned.
    A similar development is expected by the chairman of the board of the development company Finep, Michal Kocián. "The overall price of new apartments could ultimately increase by up to ten percent. In the final price, we have to factor in not only the higher VAT rate but also the increased costs of energy and building materials; otherwise, we would end up in the red," he said.
    The domestic construction leader Skanska is also planning an increase in the prices of new apartments in case of a tax rate unification. "Developers have not had such margins for a longer period, which were discussed in the corridors in the past. Nowadays, considering the high risks of development projects, they work with a reasonable profit that does not allow them to pass on the increased VAT at the expense of their margins," said Naděžda Ptáčková, the director of sales and marketing for the Skanska Reality division.
    However, the plan to unify VAT rates might bring builders more customers even before the relevant amendment takes effect. "Throughout this year, a huge wave of interest in new apartments can be expected, which can still be purchased at a reduced VAT rate," said Evžen Korec, CEO of the development company Ekospol. "We anticipate a significantly increased demand for new housing before the VAT increase itself; however, after that, there will likely be a stagnation," added Jiří Vajner, the sales director of Central Group.
    According to Korec from Ekospol, the development of demand for new housing in 2012 is a big unknown. "I expect that especially in the first half of the year, pre-stocking from this year will manifest, and apartments will be hard to sell," he added. Only in the event of economic growth, an increase in living standards, and security for the population can a return to normalcy in the market be expected, according to Korec. However, he said, it is unlikely before the second half of 2012.
    Economic ministers agreed on Thursday to unify VAT rates to 20 percent. Exceptions are some basic foodstuffs, which will retain a ten percent rate.
    The reduced VAT rate of ten percent currently applies to apartments with an area of up to 120 square meters and family houses up to 350 square meters. Most new constructions on the market belong to this category. For transactions involving older apartments, VAT is not charged, but there is a property transfer tax.