In an unexpected move on Friday of last week, the Spanish government decided to slash VAT on the purchase of new property from 8% to 4%. Applicable immediately, this discounted tax measure will last until the end of the year -31st December 2011.
A brand new property purchased in the next four months, say for example, at 150,000€ will now only pay 6000€ in VAT as opposed to 12,000€. In this case, a saving of 6000€.
The tax break is only applicable to brand new property; the 7% ITP/Transfer tax’ on ‘second hand’ property remains unchanged.
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The move is clearly designed to incentivise purchases in what remains of 2011 and provide a general stimulus to struggling property developers coupled with greater activity on behalf of financing banks.
The Economy Minister, Elena Salgado, has described the decision as “exceptional and ‘of the moment’”. Friday’s move to slash VAT comes after only 13 months when the government increased VAT on new property purchase from 7% to 8%.
The move is expected to have a positive effect on the national coffers, which at the very least means a doubling in the volume of sales transactions. Jose Blanco, the Government spokesman and Minister for Public Works said the measure would reactivate the sector in line with the requests from banks and promoters for initiatives to facilitate transactions and credit.
The tax break will come as a shot in the arm to many Property developers who are now offering discounts of between 20% and 50% on their unsold stock, there are an estimated 54,000 unsold brand new properties in the province of Malaga alone.
Although there have been a few success stories over the crisis, with some developments selling out after slashing their prices, there is clearly still further room for improvement.
The volume of Spanish nationals purchasing new homes has seen a drop off in the last six months, with many commentators laying the blame at the removal of Mortgage tax relief, which came into effect at the beginning of the year. However, there may also be light at the end of this particular tunnel. The Partido Popular (akin to the English Conservative party) widely expected to regain power in the upcoming November elections, have promised to reinstate the tax relief, even backdating it.
In short, the initiative will be welcomed by buyers who will see a clear reduction in their purchase costs, developers who will sell a lot more stock and banks who will be financing more new property purchases.