Although the regulation that will govern the refund of half VAT for buyers of new buildings has not yet been put out for public consultation, according to the information that has been released so far, this new measure cannot be associated with ‘affordable housing’ in any way. More precisely, this measure resembles a move that Superhik would use, as it will again help well-off Croats to acquire real estate even more easily.
Namely, although it is said that the state will limit the square footage and price per square meter for which VAT refund can be obtained, an important detail that has not been sufficiently highlighted in public is that buyers of luxury real estate will also be able to receive money from the state. However, not for the entire amount of VAT.
Simply put, a single person who buys an apartment with an area of 100 square meters and a total value of one million euros will still be able to receive a VAT refund, but only for the product of the price that the state sets as the upper limit (let’s say 3000 euros) and an area of 50 square meters. Thus, in this example, the buyer will receive back 15 thousand euros from the state, even though they do not fall into the category of those who need the subsidy.
Such generosity from the state will surely lead to a frenzy for new construction and ultimately an increase in real estate prices. The regulation on tax refunds for young people has not yet come to public consultation, but from several sources, we have unofficially learned that the Ministry of Construction has envisioned its content in this way. Therefore, there is a possibility that the content of the regulation will change after public consultation, but it is quite unclear why the Ministry decided on such a proposal when a simple provision could limit the incentive to the total square footage and total amount, in order to avoid subsidizing the purchase of luxury real estate with taxpayers’ money.
For comparison, in France, a similar subsidy has been in place for several years through reduced VAT (5.5 instead of 20 percent), but there, in addition to the maximum price of an apartment per square meter for each region that can enter this program, there are certain maximum incomes that a person or couple can have in order to purchase apartments with preferential VAT. Thus, a single person buying an apartment in the Paris region cannot earn more than 37,500 euros annually, while a couple with two children can earn around 88,000 euros together. Additionally, they cannot sell the apartment with preferential VAT for the next ten years, and the program is applied only in certain areas, especially in urban renewal zones (Zones Anru) and priority neighborhoods of urban policy (Quartiers prioritaires de la politique de la ville).
Considering that the average salary in France is twice as high as in Croatia, if we were to transpose their figures into the Croatian context, a single person earning around 19,000 euros annually, or about 1,600 euros monthly, could apply for reduced VAT when purchasing an apartment in Croatia. In the case of a couple with two children, the maximum average salary per person would be around 1,800 euros. However, in France, this measure can be combined with a range of others, such as an interest-free loan up to a certain value, again for the lowest income groups.
Only 20 million euros
That the measure of refunding half VAT will further raise prices is considered by Dubravko Ranilović, president of the Real Estate Business Association at HGK. – I support other measures from the National Housing Policy, but not this one. This subsidy, as designed, will further stimulate demand and the money will not reach those who really need it – says Ranilović.
Damir Juričić, deputy head of the Center for Support of Smart and Sustainable Cities at the University of Rijeka, believes that the refund of half VAT is not at all a measure from the category of affordable housing, as it only allows those who can already buy an apartment to do so at a lower cost.
– This is not so much about a measure of affordable housing as it is about a measure for more favorable acquisition of an apartment for a part of the citizens who meet the set conditions. The effects of this measure could be similar to the effects of policies previously implemented by APN – apartments are available to those citizens who are creditworthy. Therefore, this is not a measure of affordable housing that should include the criterion of housing costs up to 30 percent of disposable income. In this way, state measures are again not directed towards those who cannot buy an apartment, and the only way to solve their problem is to build social housing for rent – says Juričić.
He sees the fact that market margins are subsidized in this measure as particularly problematic. – The price of an apartment consists of construction costs, construction margins, and market margins, which are quite high in Croatia. The announced government measure allows for the subsidization of part of the commercial margin in the selling price of the apartment, which would not be appropriate for affordable housing – concludes Juričić.
In any case, although experts in this field suggest that the problem of housing affordability should be addressed through the construction of apartments for affordable rent, so that housing issues can be resolved for those who are not creditworthy due to low wages, the state continues to focus more on stimulating demand and on financial subsidies aimed at future and current owners. And this despite the fact that the APN subsidy program has raised apartment prices, as well as numerous studies suggesting that such subsidies on the demand side can lead to increased apartment prices.
Namely, in addition to the refund of half VAT, the state plans to exempt first-time property buyers from the real estate transfer tax, which amounts to three percent, and to financially incentivize owners of vacant apartments to offer them for affordable rent. They have projected that by 2030, owners of nine thousand apartments will decide on this. On the other hand, for affordable rent, the state itself plans to activate 1,200 state apartments and half of the newly built POS apartments by 2030, or another four thousand. Thus, a total of 5,200 state apartments.
Interestingly, the state has budgeted only 20 million euros for the refund of half VAT this year, which, with a minimum refund of 15 thousand euros per apartment (an apartment worth 150 thousand euros), would mean that only 1,300 buyers could use this measure. It is quite certain that the interest will be significantly higher.
It is difficult to understand why the Ministry assessed that such a small number of people would be interested in this measure when around 5,500 people applied for APN subsidized loans in 2023. However, for better assessments of the housing needs of households and how many of them are unable to secure affordable housing (loan installments or rent up to 30 percent of income), a detailed study should have been conducted before the adoption of the National Housing Policy, so that housing policy measures could be better shaped according to those results.
