Today, the Cabinet should discuss the Mister of Finance, Vlastimil Tlusty’s proposal to keep residential development in the lower, 5% VAT category even after 2007, when the VAT rate is supposed to jump to 19% as required by the EU. The lower VAT rate should be achieved by introduction of social housing, which would cover flats up to 90sqm and houses up to 150sqm. The proposal would have to be still approved by the EU.
Our view:
We believe that lower VAT rate would certainly be positive for residential developers including Orco, nevertheless, strong demand for residential development and mortgage pre-payments allowing for lower VAT rate even after end-2007 deliveries would minimize potential drop in residential sales should the lower VAT for residential development fail.