DARIAN – evaluare & consultanţă

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

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

Financial Crisis crisis, financial crisis, real estate, real estate industry, VAT