The proposed amendments to the Socially Supported Housing Act, which were published last weekend for public consultation, have finally clarified the criteria for a VAT refund of half the amount when purchasing or building the first property. However, as expected, the measure is designed primarily to encourage additional demand for new construction, which will ultimately further push up apartment prices.
According to the new law, buyers of new apartments and family houses under the age of 45 will be entitled to a VAT refund. The basis for the subsidy is determined by the product of the average price per square meter in the local government and the prescribed square footage. A single person can claim a VAT refund for 50 square meters, while each additional person in the household increases the threshold by 15 square meters. For family houses, the square footage is increased by 50 percent.
However, there are no serious restrictions regarding the total value/area of the property being purchased: it can be twice the prescribed area, and the price per square meter can be a maximum of twice the average! Therefore, a buyer can choose a significantly larger and more luxurious apartment and still receive a VAT refund, provided that the area and price do not exceed double the prescribed threshold.
For example, in Zagreb, where the average price of new construction is around 2,800 euros per square meter, a single person will be able to buy an apartment for up to 5,600 euros per square meter and with an area of up to 100 square meters. However, the VAT refund will only be granted for 50 square meters at the average price, which amounts to a basis of 140,000 euros. Taxpayers will thus subsidize apartments for individuals who can afford properties worth 560,000 euros, allowing them a refund of 14,000 euros.
It is clear that the measure will primarily benefit those who can already afford to buy a property, as there are no serious restrictions on square footage, price, or income thresholds. Additionally, it creates room for speculation – after just three years, buyers can sell or rent the property without any consequences!
Less Money for Affordable Rent
It is completely unclear why the government opted for such a measure, despite warnings from experts who appealed against introducing incentives that would further stimulate demand. Previous subsidies from the APN for interest rates have already led to a spike in prices, and now the same pattern is repeating.
It also seems that no one has analyzed the actual data on the real estate market – as much as 83 percent of sold apartments in Zagreb have an area smaller than 75 square meters, yet the law does not reflect this reality.
The financial aspect of this support is also in question. The proposed law estimates that the measure will cost 52.8 million euros annually, but only 20 million euros has been allocated in the budget for 2025. Even if the full amount is secured, it will be enough for a maximum of 3,500 buyers (if the average price of an apartment is 150,000 euros), while around five thousand buyers previously applied for APN subsidies annually.
If the law is adopted in its current form, particularly in the part relating to tax refunds, it will certainly not increase housing affordability in Croatia, but will have the completely opposite effect – it will further stimulate price increases and make it more difficult for those who truly need assistance to purchase real estate.
For this purpose, affordable rent, currently less funding is allocated than for purchase subsidies. When justifying the proposed law in public consultation, it is stated that 3.6 million euros need to be secured in the state budget this year for the affordable rental program, 24.2 million next year, and 48.4 million in 2027. A decision on the affordable rental program will be made 120 days after this law comes into effect, so the conditions and criteria for that program are not yet known. It is only known that the state plans to include not only its own properties in this program but also those from private owners who are willing to do so for a certain financial compensation (which is not yet known).
According to the proposed law, these should be properties that have not been used for at least two years from the date of application to the affordable rental program. The key question is how many property owners, who have kept their properties vacant until now, will opt for such an option. The financial incentive will likely be attractive to those whose apartments are in poor condition, as they could renovate them with state subsidies and put them up for affordable rent.
Given all of the above, we can only hope that the household registry will function very soon, so that these and other similar subsidies, measures, incentives, and assistance can be directed to those who need them most, instead of taxpayer money being wasted without any coherent criteria.
