ECONOMY

VAT effect on house prices

House prices are not projected to see the effect of the imposition of Value Added Tax (VAT) on new constructions before 2008, when the houses built under the new system are delivered, realtors say. It seems that despite the exemption of first-home buyers from VAT, which was introduced on January 1, 2006, the distinction between primary and secondary residences will gradually fade and all buyers will be burdened. The constructors, who have to pay the tax, are expected to pass it on to buyers. Furthermore, some expenses are exempt from VAT once the receipts are presented, such as for materials purchased, saving constructors some money. Through the imposition of VAT, the government has aimed at increasing tax revenue, but most importantly, it is targeting the extensive tax evasion in the construction sector. Nevertheless, constructors selling a house as a main residence will not escape paying VAT, as this would be subject to property transfer tax rather than VAT. As a result, constructors say that any VAT paid in the purchase of materials will be passed on to housebuyers, burdening them significantly. This practically means that main and secondary residences will have the same cost, while main residence buyers will have to pay transfer tax as well. Constructors also have to submit to authorities the special form calculating the cost of the building under construction, which cannot be smaller than the officially determined values. The calculated values are seen on the whole as converging with official ones, and only in some instances will costs be higher due to the high price of land or because of particularly low official prices. Constructors on the whole take the view that VAT will in essence be calculated at 19 percent of the officially set value of the building. Upon receipt of the special form calculating the cost of construction, the head of the competent tax office will examine whether the building’s official value is above its stated cost. If the two figures match then the VAT amount will be payable in a lump sum. The Greek housing market saw steep growth in the second half of last year as a result of people rushing to buy new homes before the introduction of VAT. This came on top of continuous growth in recent years, with the vast infrastructure projects prepared for Athens Olympics shifting demand to new areas and giving a strong boost to the development of new housing projects. Demand this year is projected to fall slightly.