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Austerity measures will add to property industry woes

The austerity package aimed at bolstering the failing economy unveiled by the government last Wednesday will only add to the chronic problems facing the Island’s property industry.

AUSTERITY measures amounting to some €750 million in 2011 and 2012 were announced last Wednesday by the Cyprus Finance Minister, Kikis Kazamias.

The measures include plans to raise the VAT rate from 15% to 17% per cent, increase income tax from 30% to 35% for those earning €60,000 a year or more, and a higher tax on the interest on bank deposits, which is currently 10% and which may be increased to 15%.

Plans to change immovable property tax were also announced. These reduce the amount at which immovable property tax becomes payable from €170,000 to €120,000. Owners of properties whose 1980 value is €120,000 or less will still be exempt, but then the tax is assessed on a sliding scale:

  • Owners of property having a 1980 value between €120,001 and €170,000 will pay 0.4% tax.
  •  Owners of property having a 1980 value between €170,000 and €300,000 will pay 0.5% tax.
  • Owners of property having a 1980 value between €300,000 and €500,000 will pay 0.6% tax.
  • Owners of property having a 1980 value between €500,000 and €800,001 will pay 0.7% tax.
  • Owners of property whose 1980 value is €800,001 or more will pay 0.8% tax.

The government anticipates that these changes to immovable property tax will raise €24.2 million.

Last month, the Cyprus Land & Building Developers Association wrote to President Demetris Christofias calling on him not to increase taxation as this would cause a further deterioration in the business climate and increase unemployment.

However, the announcement of a 2% hike in the rate of VAT and increases in property taxes will add to the chronic problems facing the Island’s property market and the Land & Building Developers Association has written to president Christofias again expressing the concerns of its members.

Other countries have recently reviewed their taxation systems to help revive their ailing property markets.

In Ireland, for example, the government has reduced the stamp duty for deeds to 1% on the first €1,000,000 and 2% on the remainder.

The government of Holland has just announced plans to cut its overdrachtsbelasting (conveyancing tax) from 6% to 2% for a year in an effort to boost its housing market.

And in Spain, another country facing economic hardship, the VAT rate for new houses is just 7%.

Readers' comments

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  • out of the frying pan into the fire says:

    What can you say? Dig a hole in the sand. Put your head in and all your problems will go away.

    W O W should have done that first, second, third.

  • Gavin Jones says:

    Apart from AKEL (The President’s party), the other political parties have said that these measures don’t go nearly far enough. For example, the proposed 4% contribution by public employees towards their own pensions has been withdrawn. The country is being run by a communist President in cahoots with the Unions and there’s nothing anyone can do about it – notwithstanding a revolution.

    Talking of which, if the President is exonerated after the publication of the report into the Mari explosion, the blue touch paper will be lit. Watch this space.

  • Robert Briggs says:

    @ Cyprus Expat. You will not get any sense out of these idiots “in charge” of Cyprus.

  • Cyprus Expat says:

    Raising property taxes at a time like this is madness. Reducing taxes is the way to go.

  • Martyn says:

    Epitomises the well known (mis)management phrase “when in a hole, keep on digging”‘ !!

  • James JH Lockhart says:

    Well they need to raise extra taxes just to pay for the Six Ministers who resigned last week ie 50000-00 Euros each as a lump sum plus a 890-00 Euro per month pension for life.

  • Jim says:

    The proposed tax increase of 50% for bank deposits, is likely to see people move their cash elsewhere. This counter-productive move comes at a time when the ratings agencies have cut Cyprus to BBB, making it all but impossible to raise funds on the international markets. The finance minister states he will raise any funds required from the domestic market. I cannot see how deterring investors from keeping their money in Cyprus, will help him accomplish that end.

  • Costas Apacket says:

    I still don’t understand why the Civil Servants get a free Government pension paid for by the State.

    Even if they start to contribute to the social fund they will still get this free gold plated Government pension to which they make no contribution at all??

    How can the Cypriot Government be even thinking about increasing VAT when this clear injustice exists?

  • Clive Fletcher says:

    Many of the property industries and the government’s woes could be resolved if the government made the developers, lawyers and Cypriot Judiciary face up to the fraud and dishonesty many of them are guilty, rectified the damage they have done and buyers without title deeds could then pay their agreed Property Transfer taxes.
    That would put a few euros into the government’s coffers.

    No Bailouts Cyprus until you sort the above out.

  • molly says:

    All I can say is Cyprus is making a black hole bigger, when will the government get out there and see the prom, open your eyes before it is too late as the whole world can see not just them. It is so sad to see Cyprus fall, what a mess

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