Cyprus property tax change introduced to boost market activity

[Nicholas Wallwork]

Changes to property law on Cyprus that take effect this month means that fees will be reduced on property transfers for the next six months. In a move aimed at stimulating sales on the Mediterranean island the reduction will only apply to the first sale of a property where the contract is dated and deposited [...]

Click to Read The Full Story and Add your Own Comments to Cyprus property tax change introduced to boost market activity

 

[Lysos]

This is like saying we'll cut off your toes because you've got gangrene in your leg. It will have no effect whatsoever on the property market. Over pricing & corruption are the key issues - nothing else.

 

[Cornholio]

Confirmation............

Boost for sluggish property market
By Elias Hazou
Published on November 4, 2011

BY A unanimous decision, parliament yesterday passed a bill suspending for six months the payment of property transfer fees on properties subject to VAT and cutting by 50 per cent fees on properties where no VAT is paid upon registration of the title deed.

The legislative proposal, drafted and tabled by the parties, aims to give a boost to a sluggish property market in the midst of the current slump.

The new law will have effect for six months until the government comes up with a promised comprehensive property tax restructuring scheme.

Since Cyprus’ accession to the EU, VAT is chargeable at 15 per cent on new homes. Upon the sale of a new property the buyer pays VAT at a rate of 15 per cent when a) the property is going to be used for the first time, i.e. is a new property, and b) the sale agreement provides that the property or part of the property (apartment) and the associated land will be transferred to the buyer together

Following a public outcry in the wake of the announcement that new properties would be subject to VAT from May 1, 2004, the government created the VAT rebate scheme as a means of helping lower income Cypriots to afford a home purchase in the face of ever increasing real estate prices at the time.

On top of the transfer fees, there is a property tax, but this is currently calculated on the home's value in 1980. Consequently, the vast majority of properties carry little or no tax burden.

The cash-strapped government has proposed a major restructuring of the real estate taxation system, with forthcoming property taxes based on today's market values.

Given these intentions, parties wanted in the meantime to lighten the burden on new homeowners.

“The government has said it will bring in the new tax scheme in three months…but since there is no guarantee, we decided to push ahead with the transfer fees ourselves,” said DISY’s Averoff Neophytou, who co-sponsored the bill.

The bill passed yesterday also applies to cases where a bill of sale has been submitted but for whatever reason a title deed is not issued within six months. It will not be retroactive.

Transfer fees are considered by many to be too high, ranging from 3.0 to 8.0 per cent on a property’s value. Other than discouraging transactions, particularly in lean times, another effect is to render the labour market more inflexible.

Boost for sluggish property market - Cyprus Mail

 

[Cornholio]

Comment............

Our View: Lower property transfer tax no use as long as house prices remain inflated
Published on November 5, 2011

IN AN EFFORT to boost the sluggish property market, the legislature approved a bill suspending the payment of transfer fees on new properties and reducing by 50 per cent the transfer fees on other property transactions. Parties had been toying with this idea for some time, even though the government was opposed, because it would further reduce state revenue.

As a compromise, the law would have a temporary effect, in the hope that it would kick-start a property market that has ground to a halt. The idea is that a revival of the property market, even with reduced or no transfer fees, might still generate more state revenue as well as help the construction industry, which has been among the hardest hit by the recession, and creating jobs.

The law may seem like a good idea, but we very much doubt it will have the desired effect for one very simple reason – property prices, despite the recession, remain grossly inflated and without a significant reduction it is highly unlikely there would be much market activity. High bank interest rates, which are more likely to rise than fall, do not help things either.

It is true that flat and house prices in the coastal resorts, where there was a glut, have tumbled but the pool of potential buyers has drastically contracted. In Nicosia, however, there have been small price decreases for apartments and small houses in the suburbs, while in the centre prices remain almost at pre-recession levels. Developers admit that nothing is being sold, but at the same time refuse to offer the kind of discounts that would attract buyers.

There is another matter that the new law will not address. Potential buyers know that the economy is in a dismal state and, understandably, expect property prices, like rents, to come down. This is what happens in all economies during an extended recession. But here we are defying the laws of the market, owners maintaining inflated prices at which there is zero demand. And a rational buyer will not part with his money, simply because there would be a lower transfer tax, when his perception is that property prices are inflated.

Banks, which contributed to the problem by over-valuing properties, could now put pressure on developers to bring down prices in order to start selling and generating cash. This is a possible scenario now that banks are going on a re-capitalisation path, and would want to limit non-performing loans. Whether the banks could persuade developers and property sellers to obey the laws of the market remains to be seen.

One thing is certain though. Unless property prices fall to reasonable levels the property market will not move.

Our View: Lower property transfer tax no use as long as house prices remain inflated - Cyprus Mail

 

[Cornholio]

Update............

Law on transfer fees amended
Published on November 18, 2011

PARLIAMENT yesterday amended a law passed earlier this month that suspended for six months the payment of transfer fees on properties subject to VAT and cutting by 50 per cent fees on properties where no VAT is paid upon registration of the title deed in a bid to boost the sluggish real estate market.

The legislation was amended after President Christofias refused to sign it into law and sent it back to parliament.

Under the amendment, bills of sale which had been submitted before the passage of the law and which were withdrawn after the date on which the law came into effect, are not exempt from the requirement of paying a transfer fee.

In addition, no exemption from paying transfer fees shall apply for any bills of sale bearing a date preceding that on which the law came into force.

Law on transfer fees amended - Cyprus Mail