Austria introduced a revised version of the VAT change proposal for the EU, which is not favourable for the Czech Republic. The new version calls for a VAT rise of 19% for residential projects by 2008, instead of the current 5%. The Czech Republic has been trying to negotiate for an extension of the lower VAT regime until 2010 but the latest developments suggest that it may not be successful. We estimate that the VAT hike would negatively affect demand for new residential units for the consecutive 2 years, hence sales of developers such as Orco. As the developers, and the market, have been already working with the assumption of the VAT hike in 2008 we see this information as neutral to today’s trading with Orco. We reiterate our Buy recommendation and CZK 83 fair value.