The government’s proposal to change taxes envisages a reduction in VAT on new flats from the current 15 to 12 per cent. This will make it cheaper for buyers to purchase a new apartment by three percentage points, i.e. by about a quarter of a million crowns for an average-sized Prague apartment. According to the government’s proposal, the tax change should take effect as early as January next year and approval of this change is very likely. That is why Central Group has already adjusted its price lists for apartments offered with a 12% VAT rate. In addition, buyers can now take advantage of a number of marketing bonuses, which are valid for a limited period of time.
“The tax burden on new housing has changed significantly over time in our country. As recently as 2007, a favourable rate of 5% was in place, which substantially helped the affordability of new flats. Gradually, however, the tax rate has increased to the current 15% and the Czech Republic has been falling further and further in the affordability of new housing compared to other countries. The planned VAT reduction is therefore definitely a step in the right direction,” says Dušan Kunovský, founder and head of Central Group.
The lower VAT rate for apartments up to 120 m2 now depends on parliamentary approval and the president’s signature. However, given the coalition majority in the Chamber of Deputies, it is very likely that this could be achieved by the end of this year so that the new rate could apply as early as 1 January 2024. A lower tax burden on new apartments would be further positive news for those planning to buy a new home, following the recent abolition of the restrictive DSTI credit indicator for mortgages.
“It is the state, not the developers, that makes the most money from building new homes. For every new apartment in the capital, the state receives an average of CZK 1.5 million in VAT alone. Prague now collects another CZK 250,000 in contributions from investors. And then everyone wonders why the flats are so expensive. Politicians like to talk about the need to improve the availability of housing, while the state benefits most from expensive flats,” Kunovský said.
However, those interested in buying a new home with a more favourable tax rate do not have to wait until next year, when the VAT reduction should take effect. The largest Czech residential builder Central Group has already changed the prices of flats to the 12 percent rate. The lower prices have been in effect since the beginning of September and the change applies to all of the nearly 700 new apartments up to 120 sqm on offer in nine locations across Prague.
“We have been charging all buyers prices with 12% VAT, i.e. a three per cent saving, since the beginning of September, when we changed all our price lists. This will save buyers around a quarter of a million crowns in tax on an average 70 m2 Prague apartment. The contract for the new apartment can be concluded now, but the payment of the price will take place in agreed instalments after 1 January, when the new law is due to come into force. This makes it possible to charge a lower tax rate,” explains Kunovský.
Sales of new flats are already recovering after a slump in the second half of last year, but they are still far below the level they were at in the spring of 2022. The main reason for this is expensive mortgages for buyers and high construction costs, which do not allow developers to make the offered flats cheaper. Prices of new apartments remain stable, but developers are coming up with various marketing bonuses to boost sales, which buyers can now benefit from.
For example, Central Group is coming up with a promotional offer of a bonus of CZK 500,000 to CZK 1.1 million for all its flats completed this year from September. This applies to about 170 flats in five locations in Prague. For nearly 500 more apartments in other locations under construction, the company is offering free furnishing of the apartment or subsidised help with financing – the Guaranteed Mortgage 2.99% programme.
“This year is the year of marketing bonuses, from which buyers can significantly benefit. There will be no better time to buy a home than now. Next year we can expect a completely different situation. As the market gradually reduces the supply of new homes and demand grows due to expected cheaper mortgages, client bonuses will certainly be significantly reduced. And gradually over the course of the next year, we can expect the prices of new flats to rise again,” Kunovský believes.
