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We immediately asked home developers and housing market experts about yesterday’s announcement, which was long overdue but surprisingly content, many of whom did not want to respond until the new provision was announced. in an official and detailed manner. However, several submitted their responses and all agreed that a favorable move would be made, but much would depend on the time limit.
Yesterday, it was still unclear if the builders would also need to obtain a commissioning permit in 2 years, or would simply need to obtain a permit, or perhaps start a project. However, according to the government announcement on the community site and today’s government information, the latter is:
“We will continue to take family protection measures. For construction started on December 31, 2022, VAT on housing construction will be 5%.”
It also turned out that as of January 1, 2021, the VAT on new homes will be 5%, and previous proposals for rusted areas will also be reviewed, because the new 5% VAT would no longer imply a discount in these areas.
The possible scenarios and the impact of 5% VAT on house prices have already been featured in our quick post-announcement analysis, which has been narrowed down to two possible variations after today’s events (probably because the new announcements and Permission changes could change this much more). The essential question is whether “new construction started” refers to the existence of a building permit or to the beginning of actual construction. The two options are:
- 5-year period (starting January 7): construction must start and 5 years after the start it is available until commissioning. If the start of the project is tied to the construction registration, then a total of 5 years can be considered and if a developer only applies for a permit in December 2022, they have time to build homes by the end of 2027.
- 10-year period (starting January 12): this is possible if the provision is subject to a building permit and all licensed projects are considered to have started. After the validity of 3 years, the validity of the building permit can be extended for another 2 years (1 + 1) (according to the current rules) and only after that, the construction should start and then be completed in 5 years . This could be a really developer-friendly solution, as it would essentially provide the domestic market with 5% new homes by the end of 2032.
This is also a very important point, because if we take into account the transfers of recent years, more than 100,000 new flats can be put on the market if the developers have a term of more than 5 years.
Overall, we now see that we can expect between 100 and 200 thousand new homes in the next 10 years based on the announced regulations and the attitudes of market participants.
Specific VAT issues affecting the housing market will now be discussed at the Real Estate Investment Forum on November 19. See you at PIF!
Several of the experts interviewed highlighted that the time limit is one of the most important topics in the ad that would otherwise be welcome. “Since the end of last year, market and professional analyzes have consistently indicated that after the four-year VAT period, the removal of the 5% VAT could lead to a downward spiral, resulting in a collapse on the side of housing supply. Because the decrease in demand due to the corona virus compensates for this. The open program of 5% VAT in the rust zone was a partially good solution plan, investments could have been launched in a predictable and predictable. caused hibernation instead, “he summarized Gábor Kiss, CEO of Metrodom, who also added:
The current 5% VAT without territorial restriction is a very good direction because the market is taking a breather. In the announcement, the Prime Minister also stated that he is referring to the construction works to be carried out until 2022, which was disappointing, but this morning the Hungarian Government’s Facebook page had already started up until December 31. of 2022.
This new regulation is a continuation of the 5% VAT program, which has been in force since 2016, after a small detour, so that the market can return to its previous trajectory after a short period of 27%. Now, ongoing investments by new-build home developers can continue even in tough economic conditions. There is a 2-year period for new developments to make preparations, during which time a building permit must be obtained.
Gábor kiss He also added that:
The VAT relief provides an opportunity to strengthen the supply side, although it is important to know that it will take years to recover sufficiently. On the demand side, the situation is also encouraging, because next year the covid vaccine may regain the confidence of home buyers in the future, which will be complemented by Katalin Novák’s larger home construction program and the credit line at 0% of the MNB. therefore, it is certain that demand will strengthen again.
Presumably, all developers agree that very few new housing developments are starting in the current situation, so any incentive movement must be introduced quickly, especially since the housing market is not usually like a fast-paced stock market. . Tibor Nagygyörgy, CEO of Biggeorge Property In his response, he emphasized that:
The housing market was in great need of this decision, with a minimum of 27% VAT, a minimum new home would only be built in the next few years. It would be beneficial for the government to decide on an immediate presentation so as not to make customers wait any longer.
The developers not only urge quick action, but also solve the problem of unpredictability for long-term planning. Tibor Nagygyörgy He also added that more details should be known for a comprehensive evaluation.
The devil lies in the details
Until there is an exact arrangement, one can only guess Mihály Schrancz, Managing Director of Real Estate Market They also said they expect precise details, but welcome the announcement in advance, which could bring real momentum to the market.
Utilizing the two-year period will stimulate planning, investment, and construction across the vertical.
The 5% VAT refund can also bring changes to the current mixed housing offer (5% and 27% of new apartments are present on the market at the same time) and it turns out that the details will certainly not bore sellers and lawyers, especially for clients who have recently bought an apartment with 27% VAT. Áron Horváth, chief of Eltinga He also drew attention to this in his reply:
Most attorneys will have to deal with canceled contracts and renegotiations. The developers have stock.
Everyone trusts that there will be more incentives
The developers are confident that in addition to the additional support measures, a long-term and sustainable housing policy program will be adopted. It is important that the home building program works well in the long term, so based on the expected good experience, they will support further extensions of the reduced VAT over several cycles. The above provides a good foundation for developing a well-designed and predictable housing policy.
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