Czech government approved proposal of lower 5% VAT for so called “social housing“ to be applied after 2007. This includes apartments with up to 120 sqm and houses with up to 350 sqm.
Our view:
New Finance minister presented his plans to change “social housing” classification already in mid-January. Former CSSD proposal was for appartments up to 90 sqm and for houses up to 150 sqm. New classification will fit for over 95% new residential construction. The bill still needs to be passed by the Czech Parliament and approved by European Commission, process which should not pose any obstacles as VAT is in competence of local government and is socially favorable for left wing parties as well. As we previously said we see the news as positive for real estate developers as the legal framework will become more legible. Although the government approved the exception, the sky is not completly blue regarding the the final level of VAT as of 2008. There is possibility that lower VAT will be slightly increased by 2-3 p.p. in connection to planned tax reform, step that shouldn’t have significant impact on residential demand.