by: Ignacio Lillo |
Last Friday the Government announced a temporary reduction in value added tax (IVA), from eight to four per cent, on the purchase of new properties. The aim of the move is to rekindle sales and help reduce the country’s stock of unsold new homes, which amount to some 687,000 in Spain and just over 20,000 in the province of Malaga. This gives buyers an incentive to finalise their purchase within the next four months. On an average property worth 200,000 euros the cut means that buyers will save themselves some 8,000 euros. The majority of the 20,000 unsold brand new homes in the province of Malaga are in the hands of developers or the banks.
The tax reduction has been welcomed by real estate professionals, although they admit that its effects will be limited as the main problem suffered at the moment is the banks’ refusal to grant mortgages to many potential buyers. Experts conclude therefore that the first properties to benefit from the Government’s move will be apartment’s that come with a developer’s mortgage and those that the banks are particularly keen on getting rid of.
The secretary general of the Malaga Association of Builders and Developers, Violeta Aragón, points out that the industry has been calling for tax incentives for years, as these have proved to be effective: “Last year sales increased ahead of the one per cent IVA increase”. However Aragón calls for “stable criteria and legal guarantees” for tax changes in Spain.
She goes on to explain that the majority of the unsold new properties are located in the Marbella and Estepona area where development has been more intense. There, she admits, it is possible to find properties with discounts of up to 40 per cent.
The expert also stresses the problems buyers have obtaining credit, which is the main reason why the properties are not selling. “Buyers have huge difficulties gaining funding; they are asked to meet so many requirements that it is practically impossible for an average family in employment to get a mortgage”.
Aragón says that buyers should not expect further reductions in other areas: “It’s supply and demand. There are no big discounts in more attractive areas of the Costa del Sol, such as those near the seafront, and in the city of Malaga; prices have only been dropped in areas where a lot of properties have been built as second homes”.
The president of the School of Real Estate Agents, Cayetano Rengel, agrees that the tax reduction is positive but that the real problem is access to credit. “The news is welcome, but it won’t revive the market. What they really need to do is tell the banks to lend people money so they can buy the apartments”.
He believes that the tax cut only benefits the banks themselves who will be able to get rid of some of their stock. “Now properties are cheaper but who can buy them? If the bank opens its hand they can be sold, but the credit tap is firmly turned off”.
Meanwhile Antonio Vargas of the School of Architects stresses that the tax cut is a temporary measure and could encourage those who are already thinking of buying, however it is only like taking “an aspirin for pneumonia”.
Vargas added that the Government’s measure does nothing to encourage construction as four months is not long enough for the thousands of properties that are still only half built to be completed and sold.
Prices have been reduced on new Holiday home developments in some parts of the Costa del Sol.
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