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.