The planned increase in VAT to 23% and its impact on the real estate market.

The planned increase in VAT to 23% raises questions about its impact on the property market. What can we expect?

The VAT increase will directly affect new buildings that will be sold after January 1, 2025. However, we do not expect that the increased VAT would be passed on across the board to buyers for all projects. The reason is that the prices of new apartments have already reached their limits and further increases could negatively affect purchasing power and overall demand.

When it comes to a specific impact on prices, it highlights the complexity of the situation. "It depends on the specific project whether it will be able to afford to pass on the increase in prices. We will probably see it in the price lists, but the realization prices will probably be different.

Increased interest in buying real estate is expected before the VAT change. The expert assumes that if such buyers are found, the developers will definitely use it in their marketing campaigns. However, we warn of long-term consequences: The more that is sold now, the worse it will be after 1/1/2025.

Which types of real estate will be most affected? All. Although VAT directly applies only to new construction, it will affect the entire real estate market, as it will worsen the sentiment and also the real purchasing power of households.

Availability of housing in Košice

Housing affordability is a complex issue. However, the combination of reduced interest rates and stagnant prices will probably help here a little and there will be no significant deterioration in the availability of housing. However, it must be said that we still have it pretty bad.

As for the attractiveness of real estate for investors, we remain optimistic. For investors, real estate is an attractive type of asset in the long term. Nothing will change about that. At the same time, we think that there may be a slight bias towards second-hand sales.

He assumes that prices will grow only marginally, in attractive locations that will attract new residents. Bratislava is probably safe. At the same time, however, we point out the long-term risks associated with the unfavorable demographic development of Slovakia, which may negatively affect regions and peripheral locations.

We advise potential buyers not to rush under the influence of current news. It is ideal to consult with an expert who will give them an emotion-free view of their options and the resulting appropriate strategy.

We emphasize the need for a long-term view when investing in real estate and focusing on factors such as demographic development, the economic situation in the region or plans for infrastructure development.

Change is also expected in the real estate rental market

We will reveal what to expect from prices on the rental market. We expect a slight increase in prices, but it will be rather pushed by the fact that landlords will have an argument for increasing the price. There aren't many real reasons for it, but the demand is quite strong, so why not try it. Most likely, unofficial payments will start again.

Demand, which was already battered by the change in interest rates, received another blow. Renting will probably take advantage of this situation in the short term and push prices up slightly.

The increase in VAT will undoubtedly have a significant impact on the real estate market in Slovakia, this impact will be complex and will affect different segments of the market differently.

It will be key to monitor price developments, housing availability and changes in investor preferences. It is important for potential buyers to approach decisions with a cool head, consider long-term trends and consult with experts.

How will the increased VAT affect real estate prices?

The increase in VAT, and therefore value added tax, is a topic that resonates across many sectors of the economy, but perhaps the most visible impact is on the real estate market. This market is very sensitive to any changes in legislation that may affect the costs of building, selling or renting real estate. Understanding how a VAT increase can affect real estate prices requires not only knowledge of economic principles, but also the ability to predict the behavior of the market and its participants.

The first and most obvious effect of the VAT increase can be a direct increase in real estate prices. If VAT is increased on construction materials and services, the developer faces higher costs for his projects. As an example, we can imagine a construction company that plans to build a new apartment block. Materials such as concrete, steel or wood now cost more. Increased costs are often passed on to the final consumer - the buyer. In this case, it is very likely that the final prices of apartments will increase so that the developers can maintain their profitability.

However, price increases may result in reduced demand. Not every buyer is willing or able to pay a higher price for a property. Families already teetering on the brink of their budgets may be forced to put their plans to buy a property on hold. This can slow down market activity, leading to stagnation or even a drop in prices if developers decide to sell excess properties even at lower prices.

On the other hand, expectations and speculations can temporarily disturb these assumptions. If it is announced that VAT will increase in the near future, this may motivate buyers and investors to speed up their purchases to avoid higher prices. This increase in demand may temporarily put pressure on property prices, which could rise, but only until the VAT increase actually takes effect.

The impact on rents is another aspect that cannot be ignored. If property owners face increased costs, they may decide to pass those costs on to tenants in the form of higher rents. This can result in increased financial pressure on tenants, especially in cities where rents are already high.

An interesting question is how the VAT increase will affect older properties. These properties, which have already passed the construction and sale phase, may be less affected by increased construction costs. They can thus represent an attractive choice for buyers looking for more favorable alternatives. Increased interest in older properties could, paradoxically, increase their prices, which would equalize the market.

The overall economic situation and the purchasing power of the population also play an extremely important role. In times of economic uncertainty, the impact of a VAT increase can be even more pronounced, as people are more cautious in their investment decisions. On the other hand, during periods of economic growth, the market may be more flexible and able to absorb increased costs without major shocks.

It is clear that the VAT increase is more than just a number on paper. It is a complex economic tool that can have different effects on the real estate market, depending on many factors. If we imagine the market as a living organism, then an increase in VAT is like a change in its diet that can affect its health and vitality. It is important to understand that each market has its own specifics and that these changes may have different impacts depending on local conditions and dynamics.

Housing construction is included in the highest rate, i.e. 23 percent, which in practice means a further increase in the price of housing construction, and therefore an increase in the unavailability of housing

The decline of the business environment, stagnation of the construction industry, uncertainty and the increase in the price of housing construction - these are just some of the consequences that will be caused by the introduction of the consolidation package. Employers associated in the Association of Construction Entrepreneurs of Slovakia (ZSPS) emphasize that consolidation is necessary. However, they would expect significantly more cuts on the expenditure side of the budget.

From the point of view of the overall setting of the consolidation package, according to the ZSPS, the government focused insufficiently on reducing expenses, especially redistributed flat benefits to citizens. As for the measures related to the business environment, the increase in the value added tax is evaluated positively by the employers associated in the ZSPS.

Positive with reservations

It is certainly a better solution than introducing a drastic increase in the tax-deductible burden of value creation, i.e. taxation of labor and the management of entrepreneurs. However, we are significantly more critical of the introduction of a tax on financial transactions, which will distort a fair business environment, as those who find better ways to circumvent the measure will gain a competitive advantage.

From the point of view of VAT rate changes, the government came up with a whole range of exceptions included in the lower rate. However, housing construction is included in the highest rate, i.e. 23 percent, which in practice means a further increase in the price of housing construction, and thus a further increase in the unavailability of housing, which is not good news for citizens and the construction industry. In most states of the Union, a reduced VAT rate applies to housing construction and repairs, including the Czech Republic. Individual countries are aware that it is an investment in housing, and therefore an activity in the interest of the state, which needs to be supported and not limited by an increased tax burden.

Negative effects of VAT increase

According to him, the increase in VAT on apartments also comes shortly after the European Commission did not recognize the inclusion of construction work in the preparation of rental apartments of the State-supported Rental Housing Program in the five percent VAT rate. He points out that the negative effects of the 23 percent tax will be fundamental for Slovakia and its inhabitants.

The unaffordability of housing for young families, teachers, policemen will increase, the migration of the labor force necessary for the development of the economy will be more complicated. Citizens who currently have signed reservation and mortgage contracts for the construction of an apartment will find themselves in a problematic situation. This will increase the price of the apartment by a few thousand euros, which can be a difficult problem to solve. 

An even greater slowdown in housing construction will not increase the total VAT collection in practice, but on the contrary, will decrease it even more. From the point of view of the long-term interests of the state, a reduced VAT rate of five percent for investments in apartments would certainly be more significant than a reduced rate for services that we literally receive in a restaurant.