The Real Estate Market, Seen Through the Increased VAT Perspective
At the beginning of this year we were increasing emphasis on the possibility of economic revival and, consequently, real estate market growth. Nevertheless, the economic results of the first quarter, combined with the IMF inspection, project dark perspectives upon Romania. Furthermore, the signs offered by the real estate market in April showed a price decrease, which is likely to continue during the following period of time, mainly if we consider the possible decision of VAT and flat tax increase.
The administration’s failure to limit the spending, respectively meeting the forecast economic deficit, will considerably cost us, both individuals and companies. This pro-cyclical measure is about to push down the already fragile economy – therefore we definitely won’t experience economic growth in 2010 either.
The increasing of taxes, which ultimately leads to a decrease of the personal income, will reduce people’s saving capacity, and also the possibility to access loans – this will immediately result in the heavy decrease of the solvent demand. More than that, the construction companies (which are already in a poor condition) will experience increased costs of production and, as a consequence, the real estate offer will be less and less price competitive.
The discrepancy between the solvent demand and the competitive offer will generate a blocking of transactions, emphasising the real estate crisis respectively. In this new market environment, the equilibrium between offer and demand will be achieved at a low level and as far as only the old properties are concerned. The new apartment buildings will likely become even more unavailable, especially if present prices are involved, and the perspective of new residential developments will be close to zero. I may definitely point out this decision of both VAT and flat tax increase will kill the real estate industry and not only in the next period of time.
The worsening of economic environment, implied by this decision regarding the flat tax, will generate more unemployment and also the delay of loan revival, due to increased risks.
If this economic measure is adopted (and this is very probably to happen), 2010 will be just another crisis year. We shall be able to debate economic growth again only in a few years time.
Dr. ec. Adrian Crivii, FRICS, MAA