New Homes Construction VAT drops to 5%

Most certainly the biggest news this week in real estate was Hungarian Parliament passing the bill to reduce the currently 27% VAT on construction on new residential properties to 5% from 1st January, 2016. 

New Homes Construction VAT drops to 5%

As the incredibly high, 27% VAT rate has been a very real obstacle in new home construction in the past few years, making newly built residences simply overpriced and not affordable to locals, the VAT reduction has been rumored for the past few months, and property developers waited patiently on whether this would become a reality. It has on Monday, after Parliament passed the bill for the period of 2016-2019, which includes multi-unit residential real estate (if the individual apartment sizes do not exceed 150 sqm), and single-unit residential properties sized under 300 sqm. 

With the 5% VAT rate, it is now manageable to built affordable homes, and the move is expected to result in an increase of residential real estate construction: current annual home construction numbers are between 8,000-9,0000, these could be rise by 3,000-5,000 or perhaps, according to some estimates, the figures could even double to 16,000-18,000.  

The VAT decrease could also mean a drop in the price of newly-built homes market, experts say by at least 5-8%.



The construction industry can rejoice now, although developers might also face another problem: the current lack of workers in Hungary (mostly because of previous years lack of work, and therefore immigration to Austria and the UK in the hopes of finding construction jobs) could grow to be more severe in the coming years.

In any case, the VAT reduction has been an greatly awaited move that will certainly generate new business, revenues, and even more movement on the Hungarian residential real estate market. 

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