Objective property values to rise by 30 percent on average, affecting different areas to various degrees

Greeks are rushing to build new houses before Jan. 1, 2006, when value-added tax on newly built properties and new officially determined values (known as objective), used for tax calculation purposes, will come into effect. The new values will be on average about 30 percent higher than the current ones, according to government sources. Economy and Finance Minister Giorgos Alogoskoufis said yesterday the government is still expecting the European Union’s answer to Athens’s demand for an exemption on primary residential homes from VAT. He also confirmed that by the end of the month, his ministry will have published the plan for all changes to real estate taxation. The aim of the government, at least in the first instance, is to readjust objective values to rational levels so as not to upset the balance of the property market and make sure that price rises are not rolled over onto prospective property buyers. Objective values were last updated in March 2001, so a 30 percent average rise is quite logical, a senior Economy Ministry official said. Today, for example, the highest commercial price per square meter for a first-floor flat in Aghios Dimitrios, at the southern end of the Athens metro’s Line 2, comes to 1,850 euros, when its objective value ranges at around 910 euros. This means that the sale price (which is not, however, on the contracts) is actually higher by 103 percent. If the objective value rises by 30 percent, it will reach 1,183 euros per sq.m., so the difference from the highest price of a newly built property will still be at 56 percent. In the Pefki area of northern Athens, the lowest commercial price for a newly erected building comes to 2,200 euros/sq.m., that is 120 percent more than its objective value. If the latter goes up by 30 percent, it will reach 1,296 euros/sq.m., with the minimum price still 70 percent higher. The new objective values are not expected to be significantly higher than the existing ones in most areas. The greatest rises will come in cheaper areas, smaller increases are expected in medium-priced parts of the city, while in the very expensive areas there will probably be a drop. The expected application of VAT to newly erected properties will bring down the total costs (price of flat, plus tax) in cheap areas, leave them unchanged in medium-priced areas and increase the costs in pricey neighborhoods. Property market professionals suggest that rises in objective values will not affect old properties, but only those to be built in 2006 due to the VAT to be imposed. This certainly means that properties that have changed hands at least once will obtain a comparative advantage over new ones, given that the property transfer tax will simultaneously drop by 2 to 4 percent, while for new buildings, the opinions of market professionals are divided. Under the table Still, tax evasion on property sales is rife and is completed with the consent of the tax authorities, as everyone knows that the contracts list the objective value as the sale price, while the rest of the money must be paid under the table. For example, a fifth-floor flat in an area close to Athens’s city center with an objective value of 67,000 euros was recently sold. The seller asked for 140,000 euros, provided the contract only mention the objective value of the property. The tax paid to the state came to 220 euros, while if the true price of the property, i.e. 140,000 euros, had been stated in the contract, the buyer would have paid 8,250 euros in taxes. The ministry wants to have all the changes to real estate taxation settled by the end of this month so that taxpayers are aware of all exemptions and the new system of taxing new-built properties. Government economists expect public funds to be significantly boosted by the transfers to take place before the increase of objective values. Besides objective values, the ministry is to proceed with an adjustment of prices for land across Greece. New values for farms will rise by an average 10 percent, while, in some areas, rates are expected to double, since in 1999 (when the objective system of determining property values outside town-zoning areas was first used) the values applied were particularly low and did not correspond to reality.

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