Far from all predictions, the special advisory council approved a temporary reduction to the VAT tax in hopes that home buying will increase. For a four-month period (until December 31, 2011), the VAT tax will drop in half from 8% to 4% for all new home purchases.
The government is trying to incentivize home buying and help financial firms and property developers to liquidate some of their new home stock, which is still topping 700,000 homes.
The main issue is whether this move will be sufficient for galvanizing the real estate market. Keeping in mind the slackened demand for homes, the vice-president of the economy explained that reducing the tax on homes should have a clear and positive effect. With this measure, the goal is for consumers to decide to buy a home sooner than they would otherwise, just as they did at the end of last year with the elimination of the tax credit on home purchases.
Nonetheless, consumer savings will not be equivalent to last year. Through the proposed measure, homebuyers can expect to save around 8,000 euros on average for an apartment worth 200,000 euros. While the previous deduction on permanent dwelling purchases were 15% of the annual mortgage payments up to a maximum of 9,015 euros.
Further, a spokesperson from the Minister of Public works affirmed yesterday that it is placating a petition from financial firms and property developers. The industry was displeased when the VAT was raised from 7% to 8% in July of 2010.
After that price increase, the number of new home sales fell from 24,000 per month to less than 15,000. Home prices also dropped during this time. Currently, purchases of new homes are still low.
