Czechia: If tax on new housing is cut to 12pc, flats will get cheaper

If the tax on new housing is reduced next year, developers say the price of apartments on offer will fall. The proposal to reduce the tax from the current 15 percent to 12 percent is part of a government consolidation package under discussion, which, if approved, would come into force at the start of 2024. The reduced tax would apply to flats of less than 120 square metres, and on average, developers contacted by the Czech News Agency said, flats would become cheaper by around CZK 250,000. Some developers have already started to change the price list, but the lower tax should be reflected in prices after the New Year.

"We have been charging all buyers prices with 12 per cent VAT, i.e. with a three per cent saving, since the beginning of September, when we changed all our price lists. This will save buyers of an average Prague apartment of 70 sqm around a quarter of a million crowns in tax. The contract for a new apartment can be concluded now, but the payment of the price will take place in agreed instalments after 1 January, when the new law is to come into force," said Dušan Kunovský, Chairman of the Board of Directors of Central Group.

Finep or Penta Real Estate will also proceed in a similar way. According to Penta Real Estate sales manager Jan Kalas, the tax reduction will automatically be reflected in the final price. "However, we do not plan to make apartments cheaper. We are building most of the apartments in high standard, in exceptional locations. There are still enough buyers in this premium segment who accept the offered prices," Kalaš said.

Swedish Skanska Residential and Finnish developer YIT Stavo are planning to reduce the price of new apartments following the tax change. They expect to change the price list after the law is adopted. According to the developers, the price reduction could also lead to further recovery of the real estate market. "We believe that this step will help to revive the market for new properties, but it will only be significantly affected by a more significant reduction in mortgage interest rates," said Markéta Vildomcová, director of marketing and communications at Skanska Residential.

The government's consolidation package has passed the second reading in the House of Commons and is now before final approval. In the package, the government would like to merge the 10 percent and 15 percent taxes into one of 12 percent. Apart from medical devices and food, the three per cent rate cut will also affect housing. Finance Minister Zbyněk Stanjura (ODS) said earlier that the VAT cut would mean that people would be left with an extra CZK 6.3 billion. However, the proposal also envisages a 1.8-fold increase in property tax. The package should enable the government to reduce the budget deficit by CZK 97 billion next year and by CZK 150 billion by 2025.

According to a study by consultancy Mazars, reduced VAT rates in the Czech Republic are now higher than in neighbouring countries. Poland applies reduced rates of eight and five percent, Slovakia ten and five percent, Austria 13 and ten percent. Germany uses one reduced VAT rate of seven percent. Hungary has reduced rates of 18 and five per cent.

Source: CTK