Tax changes planned for the beginning of next year will not have any significant impact on the Czech construction and real estate market. The changes in units of percentages, which will, among other things, concern property tax, tax on the purchase of new flats and corporate income tax, will be insignificant compared to aspects such as changes in interest rates, falling inflation or falling prices of construction work and materials.
From January 1 next year, only three types of taxation should be introduced at rates of zero per cent, 12 per cent and 21 per cent. The tax on the purchase of a new home will be reduced from 15 to 12 per cent, as will the tax on construction and installation work for housing and on the construction of social housing. In contrast, corporation tax will increase from 19 to 21 per cent and property tax will almost double. The consolidation package has been approved by the Chamber of Deputies and will be debated in the Senate on 8 November.
The changes will be almost invisible, according to Aleš Růžička, director of sales in the development section of the MPR Holding group. “If I pull it down to the cost part only, i.e. construction work and building materials, these have been in the order of tens of percentages over the last 18 months. Thus, three percent changes in the tax rate will not move our economy,” Růžička said.
Petr Dufek, the chief economist at Bank Creditas, also agrees that the lower VAT rate will reset against the long-term rising prices of construction work. In his opinion, the VAT reduction on new flats will have a rather short-term effect. “I also do not think that construction companies will react to higher corporate income tax. There is no room for that given the demand. As far as the property tax is concerned, its effect will be marginal from a market perspective. This tax has been relatively low for a long time, so even doubling it will not change the Czechs’ attitude towards owning their own housing,” Dufek added.
Some developers such as Central Group and Trigema have already started to take the tax reduction for new flats into account in their price lists. After the New Year, Skanska Residential, Penta Real Estate and Finep will also reduce the price of flats by approximately CZK 250,000.
According to Štěpán Křeček, an economist at BH Securities and advisor to Prime Minister Petr Fiala (ODS), the more fundamental steps to revive the market would be to shorten the construction permitting process and change interest rates. In this scenario, property prices would start to rise again, which would motivate developers to build new properties on a larger scale,” Křeček said.
According to Růžička, housing is becoming increasingly affordable nowadays mainly because of the ratio of the increase in nominal wages of the population in relation to real estate prices. Data from the Czech Statistical Office show that in the second quarter of this year, average gross monthly nominal wages rose by 7.7 percent year-on-year. However, real wages fell by 3.1 percent. The median wage in the Czech Republic was CZK 36,816.
Source: CTK
