Tax changes can cost gov't RON 7bl (real estate investors)
The suggested tax changes affecting real estate development and the construction industry may lead to losses of RON 7 billion in annual government revenues, equivalent to a decrease in business volume by 10-12%, according to a press statement of the Association of Real Estate Investors in Romania (AREI), told Agerpres.
In a letter submitted to the Romanian government, AREI says that the decrease will speed up the contraction of the domestic real estate market, as the industry's contribution to Romania's GDP formation already decreased from 14.5% in 2020 to 13 % in 2022, and demand and supply plummeted in Q1 2023 - down 25% y-o-y.
Besides the negative budgetary consequences of the changes, AREI signals cascading consequences for the entire real estate ecosystem in Romania and effects that will also be felt by the public.
According to AREI analysis, there will be higher costs incurred on the final consumer and an increase in house prices.
"Repealing the 5% VAT on housing will be strongly felt by people on low incomes, especially young people and families with many children, who will no longer be able to afford the purchase of new houses. For example, for a 2- 3 room flat, the VAT rate increased to 9% will attract an additional cost of EUR 4,800 plus notary fees calculated on the total purchase value, but real estate prices in Romania have already increased by 12% in less than 2 years."
On the other hand, an increased financial pressure could lead some developers to compromise on the quality of materials used in construction.
At the same time, the developers could be forced to reduce the size of the housing units in order to keep the final price of the flats affordable.
According to AREI, approximately 91% of the construction and real estate companies operating in Romania are micro-enterprises, and the level of generalised taxation applied to the discussed changes will increase from RON 338 million in 2022 to RON 1.478 billion in 2024, that is from 1.1% of turnover in 2022 to 5% of turnover in 2024, four times the national average.
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