IN A MEMORANDUM to President Demetris Christofias the Cyprus Land and Building Developers Association has put forward a number of suggestions to revive the Island’s property industry.
The memorandum calls on the President not to impose new taxes on businesses as these will result in a further deterioration in the business climate by depriving businesses of working capital and increasing unemployment.
The Association suggests that the government should provide incentives and measures to help revive and revitalize the property market and in particular, a review of the Property Transfer Fee bands, VAT and Capital Gains Tax.
Ten years ago, the average apartment cost the equivalent of €51,000 and attracted Property Transfer Fees of €1,500. Today, that same apartment would cost €200,000, and would attract Property Transfer Fees amounting to €9,000 plus €30,000 VAT; that’s a 2,600% increase in tax!
Capital Gains Tax thresholds, which have remained unchanged for 20 years, should also be reviewed. The Association argues that the current rate of 20% and the present thresholds deter sales and result in under-declaring a property’s purchase price in efforts to reduce a vendor’s Capital Gains Tax liability.
It also argues that revising Capital Gains Tax will eliminate the problem of creating what it calls a ‘shadow economy’ and the distortions that occur from the failure to declare the actual sales value in contracts.
Other countries have recently reviewed their taxation systems to help revive their 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.
The RICS Cyprus Property Price Index for the fourth quarter of 2010 gave the price for an average 3-bedroom semi-detached house at €431,705.
The Property Transfer Fees (or equivalent) payable by the purchaser would cost:
In Cyprus – €27,701.99
In Ireland – €4,317.05
In Holland – € 8,634.10
Perhaps the suggestions put forward by the Cyprus Land and Building Developers Association warrant further investigation.