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Will Cyprus follow Spain’s example

Will Cyprus follow the example of Spain where the government plans to halve the VAT payable on the sale of newly built housing until the end of the year in an effort to boost its property market?

THE Spanish government has announced plans to temporarily reduce the rate of VAT on newly built housing in an attempt to encourage sales and boost its moribund property market.

The announcement came at a recent press conference where the Spanish Finance Minister, Elena Salgado, announced that rate of VAT on newly built housing will be reduced from 8% to 4% until the end of the year.

The move should help reduce the large number of unsold properties that have been built in recent years. Property prices in Spain have plummeted since 2008 while the number of sales and employment levels have also fallen significantly.

Cyprus is in a similar position to that of Spain with thousands of newly built properties remaining unsold and littering the once popular seaside areas. Prices too have fallen and unemployment in the industry has risen sharply since the market peaked in 2007.

But the Cyprus government’s response to the economic crisis is to introduce a number of bills that, amongst other measures, will raise VAT from 15% to 17% and more than double the amount it collects in Immovable Property Tax from €10 million to €24.2 million/annum.

The Cyprus Land & Building Developers Association has written to President Demetris Christofias on two occasions urging him not to increase taxation as this would cause a further deterioration in the business climate and increase unemployment.

George Strovolides, the president of the Cyprus Land & Property Owners Association (KSIA), has said that the imposition of new taxes on property will have tragic consequences. He has written to the Island’s Finance Minister Kikis Kazamias requesting an urgent meeting to discuss the tax raising bill.

Unless the Cyprus government is willing to follow Spain’s example and takes positive measures to stimulate property sales, the outlook for the Island’s real estate sector looks very bleak.

Readers' comments

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  • @Jim – here’s the latest on the situation from Reuters:

    Aug 24 (Reuters) – Cyprus plans to cut starting salaries in its bloated public sector and pursue tax evasion more vigorously by law, Cypriot Finance Minister Kikis Kazamias said on Wednesday.

    Kazamias, addressing parliament, said authorities would also work to better target its spending this year. Parliament is now discussing a 750 million euro two-year austerity package which MPs have criticised as insufficient to ease the island out of its fiscal woes.

    Cyprus is scrambling to avert a financial meltdown which some suggest could lead the Mediterranean island to become the fourth euro zone country to resort to an EU bailout.

  • Jim says:

    We may well see some new measures. I hear that the vote on the austerity measures may be postponed till the end of the month, so that it can be looked at again. The proposed measures had been diluted & considered insufficient for the purpose.

  • @Costas – thanks for your comment. You can find more information about Immovable Property Tax at Cyprus Immovable Property Tax law.

  • Costas Apacket says:

    I believe that it is only people with Title Deeds who will have to pay IPT.

    In a lot of cases this will be the developer who has yet to sub divide the land on which they have built several properties.

    It’s important for anyone in this position to find out what the 1980 valuation of the land their development is built on.

    There are nearly 30 properties on the land where our property is built, but the 1980 valuation of the whole land area is less than 17,000 Euros.

    I understand that normally the developer is responsible for paying any IPT due on the whole development until individual title deeds are supplied to purchasers.

    It’s absolutely key to ensure that before anyone hands over any IPT demanded by a developer that they demand to see a receipt of what the developer has paid to the authorities for the whole development.

    Individuals should then only have to pay their own proportion of what the developer has paid, which in some cases is zero.

  • Andrew says:

    Cutting taxes would be useful. However if the government really wanted to stimulate property sales, they would ensure that full Title Deeds are issued at the time of purchase. Nothing less will do!

  • Robert Briggs says:

    Apart from drastically reducing their taxes, they will have to underwrite/ensure, or give a cast iron warranty that the Buyers will receive Title Deeds upon point of sale. Please note that the concept of absolute Title Deeds has been embedded in ancient Chinese civilization from approx 3500 years ago & the Roman Empire circa 2500 years ago.

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