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The 5% VAT on new houses will return in Hungary
At Home Budapest, 2020. 10. 22.
It seems that the Hungarian new-home market won’t be excitement-free in the coming years either. Why? Because after the government raised the housing tax on the sale of new residential properties from 5 to 27 percent at the end of 2019, from January 2021, the 5 percent VAT will return. In addition, if you’re buying a property by using CSOK (the government’s home buying subsidy scheme) even this 5 percent can be reclaimed. The purpose of this provision is clearly to increase investment in construction, but it raises questions how the constant changes of legislation will affect the real estate market.
Decline on the market
The decision was certainly based on the fact that since the return of the 27 percent housing tax, the number of registered building permits has decreased significantly. In the first half of this year, this number was 32 percent less than in the first half of 2019 on average. The number of apartments to be built fell by 21 percent in Budapest and by 51 percent in other large cities, which is a clear sign that urgent changes are need in the building industry. As the situation is unlikely to improve by the end of this year, the government has decided that they will bring back the 5 percent housing tax from 1 January 2021 until 31 December 2022, as part of an economic stimulus plan aimed at containing the fallout from the coronavirus crisis.
It’s hard without stability
On one hand, the return of state housing subsidies is welcomed, but on the other hand, it creates a great deal of uncertainty and raises many new questions. The domestic new-home market has been waiting for a calm, predictable and risk-free period since the crisis of 2008, as stability is essential for development and technological advancement. This would be in the interest not only of the real estate developers, but also of all market participants, therefore, the buyers as well. However, this change would require a degree of technological and organizational development in the construction market that would require planning 10-20 years in advance. But until government decision completely reorganize the market in every 2-4 years, only short-term players can prevail. Unless this is prevented, the price/value ratio of real estates will not improve significantly. All in all, a 5 percent VAT rate will surely have a positive effect on the new-home market in the short term, but it won’t help long-term planning at all.
Still too many questions
The exact details aren’t known yet, so it’s not entirely clear which properties and projects are subject exactly to the 5 percent VAT rate in the period 2021-2022. In the best case scenario, it applies for those who receive a building permit by 31 December 2022, as there’s time to submit tens of thousands plans by then. One less fortunate scenario is if the property has to have an occupancy permit by then, which means a ready-to-hand-over building. And we all know that no large investment can be can be done in 2 years.Clearly the question might arise in you too: how will this affect the housing prices? Will the apartment that is sold today for a net HUF 100 million in a 27 percent project, so gross 127 million, remain the same net 100 million for tomorrow with 5 percent VAT and will eventually cost the buyer a gross 105 million, or is it announced that "now only 115 instead of 127 million"?
However, the prices of the real estate market depend on several other factors as well. For example, how Airbnb owners will react to the changed situation due to the coronavirus? Are they going to sell their properties, leading to mass liquidation and falling prices? Compared to the lower purchase prices from years ago, will the current yield still be sufficient? In the case of funded properties, how many can wait until the end of this transition period? Will the decline in tenant yields discourage investors from buying? It’s important as this could also lead to a decrease in demand and prices. Unfortunately, due to the complexity of the market, we can’t provide specific answers to these questions yet, but it’s best to keep an eye on the changes.
The certain future
For the next two years, it will surely be worth buying a newly built property, especially if we consider the 5 percent housing VAT that can be reclaimed on both new and second-hand properties purchased through CSOK. So, if you’re planning something like that, it’s time to start looking. Take a look at our offers, where you will find many newly built luxury properties for sale!You might be interested in this:
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