VAT on new Spanish properties to fall from 8% to 4%

Stimulus needed to kickstart construction. The Consejo de Ministros have this morning reached an agreement to reduce VAT on new properties from 8% to 4% as an ” exceptional and temporary” measure which will be maintained until 31st December.

The Minister of Development, José Blanco and the Economic Vicepresudent, Elena Salgado, presented the measures today, explaining that the implementation of a low VAT rate is intended to try and incentivise purchasers into buying new properties, a property purchaser buying for 200,000 euros saving 8000 euros on the purchase price due to the new VAT rate.
The Minister said that there are areas where there is high demand for new constructions to begin, and actual shortages of homes in some City locations, but that construction start-ups were frozen due to the volumes of money tied up in unoccupied properties which had already been completed.
Until some of the stock of properties was liquidated, lending on new construction was at a standstill, the immediate need being to clear some of the existing stock to stimulate renewed market movement.
According to the latest figures published by the Institute for development, there are 687,523 new homes as yet unsold throughout Spain, as against the 688,044 of the previous year, a reduction last year of only 0.08% in the stock of empty properties.

And sales activity continues to fall. According to the National Institute of Statistics, sales of new properties declined by 10.1% in the first six months of this year, compared to the same time period last year.

The Government desperately need to restimulate economic activity in the construction sector.
According to data presented by Eurostat, construction contracted in Spain by 43.7% in June, and the contribution of construction to the GDP of Spain has fallen from 10 to 4%.

Last year the government raised the VAT level on new properties from 7 to 8%, stimulating a flurry of activity before the increase was implemented as buyers rushed to beat the deadline.
Elena Salgado said that the backpaddling was a “positive” step which would increase government VAT revenues on house purchases, as at the moment the level of incoming revenue was “zero”.
She had already initiated conversations with the European Commission about the decision to lower the VAT rate to the end of the year.

The Government hopes that this decision will stimulate movement in the property market and help the construction industry to regain enough liquidity to start building again.

The President of the G-14, Pedro Pérez, applauded the action of the Government , saying that in his opinion the move would help to restimulate a sector “punished by the economic crisis.” In a communication issued this afternoon, he said that the reduction in IVA could give ” an impulse” to the sale of properties already built, ” which could accelerate the reduction in the stock of properties.”
However, he also added that for a “relaunching of the sector” to occur, better access to financing and loans was required, for which he requested increased activity from the ICO, Instituto de Crédito Oficial.

Initial reactions from agents were that it would make little difference as substantial discounts could be negotiated in a buyers market, but that any initiatives were welcome.

The decreased rate will only apply to new, not second hand properties.