A big cut in VAT could result in cheaper newly built properties in Hungary
November 5th, 2015The price of newly built homes could significantly decrease, but only if the VAT cut previously implied by the Hungarian government is a cut big enough.
New constructions are currently still on hold on the Hungarian market, but not because there is no demand for newly built homes. The market is in dire need of newly built flats, but investors are very careful and are not eager to start new construction projects because they fear their profits would be too low.
With the current market prices paying the 27% VAT would take too big a share of the profit, therefore entrepreneurs don't see sufficient return is such projects. This means the smaller the cut of VAT is the less buyers will feel it.
If the VAT is lowered to 18% there would only be a very slight growth of supply, but still, there would be more estates the buyers can choose from. But is the VAT is lowered radically to 5% that could mean a 8-10% drop in prices of estates.
But this could only happen if supply truly starts to grow again significantly and on a much larger scale than ever since the financial crisis.
Data published by the Hungarian Central Statistical Office suggests that inflation in the construction industry has only been 14 percent – compared to 20 percent national inflation -, the prices of newly built estates lagged behind the total growth of consumer prices.