ECONOMY

Property tax cuts aim to keep up pace of housing construction

The government is promoting significant changes in property taxation aiming to bolster construction activity, sources say. The relevant bill is projected for tabling in Parliament in the autumn and provides for a lifting of the tax-free ceilings for donations, inheritances, parental transfers and the purchase of first homes, and for a two-percentage-point reduction of the tax rate on property transfers. Other reductions concern the Tax on Large Real Estate, which, according to the sources, is planned as one of the new sources of revenue for local government as of 2005. It is almost certain that the government will not, at least at this point, open the issue of the proposed introduction of value-added tax in 2005, fearing reactions both from construction companies (mainly the smaller ones) and taxpayers, who fear that they will face higher prices. The government’s guidelines to the committee that has undertaken the task of preparing recommendations on tax reform refer to substantial reductions, always within the constraints of the budget. Key proposals The committee has already completed its proposals on property taxation, which include: (1) A raising of the tax-free ceilings in the various scales as per category of transaction. The tax-free ceiling in the tax scale concerning parental transfers is proposed to be lifted to 80,000 euros. The committee also recommends that the time for paying inheritance tax installments be lengthened from two to four years. The measure is seen as facilitating the ability of families to keep properties within the family. (2) The proposed tax-free ceilings for first-time house buyers will rise from 65,000 euros for single people and 100,000 euros for married couples to 100,000 euros and 120,000-130,000 euros respectively. Additional breaks of 20,000 euros are envisaged for each of the first two children and 30,000 euros for each one thereafter. A member of the committee argues that the lifting of the ceilings has become necessary given that conditions have vastly changed the landscape in the property market. And house prices have risen considerably in recent years. (3) Property transfer taxes should be reduced from 9 percent for the first 15,000 euros of property value and 11 percent for the segment thereafter to 7 percent and 9 percent respectively. (4) A change is proposed in the present system of tax deductible interest on mortgages for first-house buying. According to the provisions currently in force, the deductible from the income tax due is 15 percent of the interest on mortgages of up to 200,000 euros and for houses up to 120 square meters. The system is seen as burdening mainly middle-income families. The government is considering either raising the percentage of interest deducted from the tax due or returning to the previous system whereby interest was deducted from taxable income. The proposed changes are initially expected to dampen demand for property, at least for the rest of 2004, as prospective buyers put plans on hold until the bill is passed so as to take advantage of the lower rates. But they are seen as a welcome measure, given estimates by the Bank of Greece and property brokers that prices have reached a plateau and that a fall of up to 5 percent is likely in 2005. Buoyant housing construction activity in recent years, helped by favorable financing conditions, has increased supply to a level considered satisfactory for present requirements. Estimates that the market has reached a plateau are indicated by signs of a slowdown and even a decline in prices in some areas. It is also corroborated by signs of a slowdown in the growth rate of mortgages. The government is anxious to maintain momentum in housing construction, considered an important tool in maintaining economic growth rates.