This is a taboo subject that has been repeatedly approached by me during the last 2-3 years, but it did not raise the interest it would have deserved, perhaps due to the fact talking about taxes is not such a pleasant activity.
The budgetary difficulties we face these days, which lead to aberrant decisions like the dramatic and without discernment pensions decrease, could find solutions in some other area, not in that of an unavoidable increase of the flat tax and VAT, namely setting taxes based on realistic and rational principles of property.
There is no such thing as a well developed society, with solid market principles and respect towards private property, which does not set real estate taxes that match the market value of those very properties.
There are 2 major discrepancies in Romania when it comes to setting taxes on properties, besides the low level of those taxes themselves:
- a tax base set on empirical and egalitarian methods, which leads to inequity
- an exaggerate difference in taxes of the same property, regardless its owner (individual or company)
A reasonable solution to this problem could be the decision taken by the Ministry of Finance to change the whole tax system (and the tax base respectively), beginning with the market value of the property. Although this is going to be a very complex process, which is going to consume will power, time, effort and money, it would definitely resolve many of the budgetary issues and it would also create solid premises for the correct real estate market alignment when it comes to the tax value of properties, depending on objective criteria such as location and intrinsic quality of the property.
With this change in approach, the properties tax values could double or even triple, making the budget revenues therefore obtained grow significantly.
Dr. ec. Adrian Crivii, FRICS, MAA
Financial Crisis
english, properties, taxes, VAT
I would like to say a few things about the price evolution of apartments which are 30 or 40 years old. Built during the communist era, this kind of buildings still represents the main type of residential properties in the major cities of our country.
Most of these apartments were built between 1965-1980, during the so-called flourishing period of socialism. They had to face the demographic expansion and forced industrialization, which defined that era. The flats were bought at cheap prices in the nineties, by their tenants who later on avoided investing in modernization. Some of them even re-sold their apartments, making a huge profit.
From the point of view of their structural strength (except Bucharest, see a big earthquake prospect), these apartments are still in a good shape. But if we refer to the insulation systems, installations and finishings , we can say their quality is very poor and they need important investments in rehabilitation, which are unlikely to occur given the financing cost these days.
In the last 20 years, Romania has not seen any important investment in improving the yield of the district heating plants (co-generation) and neither in the insulation of homes field. The much simpler solution (but not economically efficient) was always preferred: random subsidies made without taking into account the beneficiaries income.
The deep economic crisis will inevitably result in the abandon of these subsidies and we will have to face serious problems regarding the flats maintaining costs, considering the large amount of elderly inhabitants, who live on pensions and have limited financial means. Given this situation, it is very unlikely to witness investments in restoration.
I expect a large number of families who live in these apartments to have a very difficult winter and also outstanding payments of their bills.
The significant depreciations, physical (wear, lack of current and major repairs) or functional (lack of thermal comfort and high maintenance prices), will strongly decrease the value of these apartments in the next period of time. Another thing causing this phenomenon will be the pronounced decrease of people’s purchasing capacity.
Unfortunately, many apartments coming from the old districts, the ones from the suburbs or from the working-class neighbourhoods, having this stigma, are about to considerably degrade themselves, considering the reasons mentioned.
During the following year, as the crisis will increase, it is possible the value of these apartments will significantly drop (around 20-25%), leading to a price of 500-700 euro per square meter, which will fairly equal the price of the new flats, built in the cities suburbs.
Dr. ec. Adrian Crivii, FRICS, MAA
Financial Crisis, Real Estate Market
apartments, english, financial crisis, real estate, real estate industry
