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Following the Government’s conclusions, the Seimas intends to consider a draft amendment to the Land Law, which provides for the introduction of a new tax for the development of real estate projects on state lands. The law has been widely discussed in the media, a brawl business, but society seems to have no role in this story.
“It just came to our attention then. At first glance, everything seems very fair and reasonable: the State must use its assets efficiently, and one of the most expensive of them, land, must obtain the highest return that will benefit everyone. However, attention must be paid to the cost of such a decision and to what extent it is democratic and capitalist.
We do not enforce a gift and discount policy when selling homes in Citus managed projects, and we educate our buyers that gifts and discounts are still included in the price. Let us now apply this example to the law in question: the return of the State, which it should share with all of us, in this case, is a gift. And what is the price of that?
That is the crucial question. For example, the current situation in Vilnius regarding plots suitable for development is quite complicated: they are missing, so the “seller’s market” has completely prevailed. The competition for every parcel of land is huge, so prices are rising very fast. The price of a plot, of course, is one of the components of the final product, say, an apartment. In general, when the land becomes more expensive, so do the apartments, ”says M. Vanagas.
How to turn the euro into two
According to M. Vanags, the law to be examined by the Seimas provides for a multi-layered “tax sandwich”.
Mindaugas Vanagas
First layer: if the construction area of the planned buildings on the state land is more than 40 percent. will exceed the buildable area of the previous buildings, the developer must pay 50% of the price of the plot. a fee that looks for the value of the parcel. For example, if the plot is 1,000 square meters. m of land occupied by a disused warehouse with administrative premises, and it is planned to replace it with 1,500 m2. m of area occupied by the building, the rate will be the maximum. Suppose you have to pay EUR 1.5 billion for a EUR 1 million parcel. EUR.
And those plots in Vilnius are not a rarity.
Second: if the total area of planned buildings on state land is more than 40 percent. will exceed the total area of the previous buildings, an additional 50% will be added to the developer. a fee that reaches the value of the parcel. For example, the same 1,000 square meters. The aforementioned demolition warehouse with administrative premises has two floors and its total area is 1,500 m2. subway. A 3,000 square meter four-story building. m total building area and the rate is increasing again. EUR 1,000,000 becomes EUR 2,000,000.
Well, and dessert: if the purpose of the plot is changed, the still insignificant 5 percent. and 1 million. the plot costs 2,050,000 euros.
Cherry in a “sandwich” – the plot is transferred for a long-term lease and the developer (and therefore the future owners of the property, for example, the inhabitants of the apartments) do not acquire ownership of the property .
The answer to the most important question, how much can it cost a home buyer is, according to M. Vanago, about 15,000-25,000 euros very short of the middle class, 50 square meters. M house prices in the area.
The price of a plot in the price of one square meter of housing constitutes a significant part: for example, in the most popular district of Vilnius, Naujamiestis, the price of a plot in the price of one square meter of each new house is 250 to 500 Eur. Thus, if the price of the plot, according to the example analyzed above, would increase from 1 million. EUR up to EUR 2,050,000, and it is possible to build 3,000 m2 M. m of housing, the participation of the price of the plot in the price of the square meter of housing will increase from 333 Eur / km2. at 683 Eur / m2. m., and 50 square meters. m of housing will increase in price by about 17,500 EUR. However, a plot can be more expensive, which makes housing more expensive.
Especially if the law will cause a rise in market prices for land.
The price springboard is a gap to affordability and competitiveness
M. Vanagas emphasizes that no less important and planned value calculation mechanism is based on the market price. The market price is the one that is recorded when the surrounding transactions are carried out. In such a situation, private plots will be expensive. And why should a private parcel owner want to get less for his property than he will be required to pay for a nearby public parcel? After all, and less bureaucracy, and the ownership of the plot belongs to the buyer.
Such a situation can activate such a price carousel that there will be no attractive plots in Vilnius for the development of any project. How such a vicious cycle could drive up house prices, I don’t even suppose. Probably with great force.
The effect will be further aggravated by declining supply and constant demand. Housing affordability will plummet and regulatory tools will not be able to stop it.
“Of course, this cannot continue indefinitely, so the city will stop expanding. There will be no affordable housing, it will not be attractive for people from other cities and towns to travel here, it will be extremely difficult to attract migrants or specialists from other countries. In many Western European cities, housing affordability is one of the biggest problems, which governments or municipalities tackle by implementing and applying various incentive mechanisms. In Lithuania, a law would change the situation in the opposite direction, “says M Vanagas.
According to him, some provisions of the law are good. They should end the long-standing situation where public leased lands can be set aside for no good reason. It is because of this aspect and the lengthy collision of the previous litany that it would be extremely frustrating if the law were to become a burden on prospective home buyers rather than an effective tool for managing perhaps the most expensive state property.
Statulevičius: we can get a snowball effect
According to Mindaugas Statulevičius, President of LNTPA, we must take action today because of the maturing housing affordability problem. First, home sales are hitting records, and if it lags, supply may no longer keep up with demand, leading to additional price increases.
Mindaugas Statulevičius
Second, the adoption of the amendments to the Land Under Consideration Act will inevitably create a snowball effect along with the impact of demand. We can already see that the market understands the importance of the Land Law and the prices of private plots are increasing; its sellers understand that when the price of state land doubles, according to the laws of the market, the price of private land is the same.
The snowball effect means that, in some cases, housing can become 20-30% more expensive. This is in no way in line with the goal of creating affordable housing in Lithuania, so the association offers another way to compensate the state for state lands: to provide a transition period during which the tax would be paid. This would avoid a sudden price shock.
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