DARIAN – evaluare & consultanţă

Romania’s economic situation becomes increasingly dramatic, and in the next 6-12 months, the damages will be hurricane sized for both living standards of the population and company balance sheets.

Failure to balance the budget deficit by decent expenditure restraining measures, makes the government to take crisis decisions with unpredictable negative effects on the future. One of these decisions is higher taxation, practically taxing multiple real estate property owners. The real estate property tax system in Romania is clearly deficient, and has an empirical ground, so it must be modernized and brought into line with its market value, which is one of the issues we have raised several times since a few years ago. But from this to discourage with duties the owners of several properties, or real estate investors who saved or borrowed and invested, for their own comfort and economic security, is a long way. How can we speak of supporting or encouraging the real estate industry, then to take such pro-cyclic actions with devastating long-term effects?

By these fiscal policies there are promoted again the immediate consumption and personal loan credit and not the long-term investments that should represent the normal evolution in the development of a modern society. Obviously, investors are taking note of this situation and will take appropriate decisions so that the intention of boosting budget revenues will not be successful. Rental market should be encouraged in terms of increased population mobility imposed by market economy law and which can not grow without real estate investors. Rental taxes should represent an important support for the local communities’ budget and an investment source for land urbanization, creating conditions for future real estate property development.

Let’s see now some specifications regarding the evolution of the crisis we face: if the economic difficulties from the 90’s overtook people at a low level of debt, now it will wreak havoc in families in Romania who were heavily indebted, and if the banking system has been successful compared to the year before, and delayed, taking the shock of bad loans, we can not say the same thing about 2010 and 2011, which will be the real endurance test.

Dr. ec. Adrian Crivii, FRICS, MAA

Financial Crisis, Real Estate Market duties, taxes

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