The Association of Real Estate Investors of Romania (AREI) sent a letter to the government regarding fiscal measures from the project, recently published by HotNews.ro.

What are the consequences of the measures desired by the PSD-PNL coalition, according to AREI:

1. Higher costs for the final consumer and rising housing prices

The abolition of the 5% VAT rate on housing will strongly affect the low-income population, especially young people and large families, who will no longer be able to afford the purchase of a new home. For example, for a 2-3 room apartment, the VAT rate increased to 9% will bring additional costs of 4,800 euros plus notary fees, calculated on the total purchase price, considering that the price of housing in Romania has already registered a 12% increase in less than 2 years ;

2. Decreasing the quality of the supply of new houses

Increasing financial pressure may force some developers to compromise on the quality of materials used in construction. At the same time, developers may be forced to reduce the size of residential units in order to keep the final price of apartments affordable.

This could lead to oversaturation of the market with smaller apartments, given that Romania has a significant gap with other EU member states, having the lowest average number of rooms per person and the highest percentage of people living in overcrowded housing;

3. Increased risk of tax evasion

An increase in the fiscal burden on the residential segment (increasing the VAT rate on housing to 9%, applying a 5% tax on the sales price for transactions worth more than 600,000 lei) may give rise to premises that will lead to tax evasion, in the sense of declaring certain values ​​to be lower;

4. Risk of blocking in the real estate market

Given that demand for housing is highly price elastic and high inflation and higher mortgage interest rates have reduced the attractiveness of bank financing solutions, new measures, especially the introduction of new taxes (i.e. 5% of the sales price for transactions over 600,000 lei) can reduce demand and supply on the real estate market by at least 50% in 2024.

On the other hand, the regulation of new fiscal measures can only be achieved by monitoring compliance with constitutional norms, analyzing opportunities and avoiding any ambiguities regarding the implementation dimension;

5. The tax burden has increased more than 4 times

Approximately 91% of companies operating in the field of construction and real estate operations are micro-enterprises, and the level of general taxation applicable based on the discussed changes will increase from 338 million lei (2022) to 1478 million lei (2024), according to 1, 1% of turnover (2022) to 5% of turnover (2024), which is 4 times higher than the national average;

5. Increased pressure on labor costs

The re-introduction of CASS on construction wages will reduce net wages paid in the sector by around 11.1% and lead to a large compensatory effort by developers/builders, putting pressure on their costs.

Read also:

Buyers will no longer be able to afford a house / How fiscal measures required by PSD-PNL will affect the real estate market