Spanish Government Cuts VAT on New Build Property

Finally after years of inaction the Spanish Government has acted to try and cut the backlog of new build homes by slashing the VAT rate on new build property from 8% to 4%. It is described as a temporary measure until the end of the year. This is good news for the new build properties that we hold in various parts of Spain that have already been slashed in price. Ally this to the weakening Euro, the pound was at 1.15 Euros yesterday and Spanish new build property has just become much more affordable. Look out next week for a post about our properties at half price in Desert Springs, Almeria, Benidorm and Murcia. However, there are various pros and cons to this move and I thought I would just give you my thoughts on the decision as seen from an estate agent in Spain.
  • The cut should be applied to all property not just new build. As I have said before in this blog most of the new build property is of questionable quality in areas that there was no reason to build and therefore it doesn't matter what the price is they will not sell. Cutting the tax on all home sales would move the market as a whole and increase tax revenues, although that may seem counter intuitive as the associated spend to a house purchase plus the increased number of transactions would stimulate the economy more.
  • Again the government is trying to bail out their friends in the banks and big developers with large lobbying presences. At the same time in many parts of Spain this measure could crucify the individual seller trying to sell their second hand property as the competition from banks with lower taxes and their refusal to fund anything that is not on their books, ie new build or repossession from developer, is hard enough as it is.
  • It wouldn't surprise me one bit to see developers sneakily raise prices by three or four per cent. I will be keeping an eye on prices to see if that happens anywhere. However what really should happen is developers and banks holding new Spanish property stock should cut their prices too in order to give a big impulse to new build sales.
  • I would expect banks to apply the measure as a publicity campaign to their stock of repossessed second hand property. They will state "We will pay half of your tax" in effect giving a 4% cut in the prices on their stock of older properties.
  • I don't expect there to be a rush to buy new build homes as a result of the measure. However, anyone who was thinking of buying in the next year or so might well rush the transaction through before the end of the year when the stimulus runs out.
  • If the period is not extended (see below) I expect lots of doom and gloom stories in the press next February when new build sales crash through the floor after the stimulus ends. My prediction is there will not be any completions on Spanish new build property in the first couple of months of next year unless the developers and banks eat this cost by reducing the price accordingly.
  • Finally, I expect the measure to be extended as the overhang of new build property will still be there at the end of the period and there will be no reason for it to end.
How do you see the measure? Will it encourage you to step up your search for Spanish new build property or not? [caption id="attachment_2790" align="aligncenter" width="500" caption="Thinking About Reducing VAT on New Spanish Property?"]Thinking About Reducing VAT on New Spanish Property[/caption]
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