VAT for house building to affect construction market

As the zero VAT quota will be cancelled as of January 1, 2002, house prices will immediately increase by 19% and the market will face an increase in the black market labour and in the price of buildings that have already been erected, together with negative effects for the construction materials industry, services and transports.

“As house prices will go up by 19%, the market would have to bear the new price, while the volume of constructions will not change. However, this will not happen because otherwise revenues of construction consumers would increase by 19%, which is hard to believe,” said Dan Ioan Popp, president of construction company Impact Bucharest.

According to Pop, someone will have to bear this price increase.

“Construction companies will be realistic and will realise that they must cut prices in order to survive on the market. If the company wants to cut the price, it will have to cut expenses where possible. Therefore, it will “rearrange” its taxes, namely salary tax and social security contribution (CAS). Consequently, this will boost labour on the black market,” Popp said. He estimates that the state will gain the VAT quota but will also lose some of the taxes it had begun to collect.

A slowdown in constructions will also affect the construction materials industry, services and transports.

“It is surprising that, in this industry, the states pays 30-40% of the bills. Practically, the state takes its own money and pays the VAT, because it invests in various works, shifting the money from one pocket to the other, and it may lose on the whole,” says Popp.

VAT reintroduction for house building will lead to a $60 increase in the price per square metre, says Gheorghe Polizu, chairman of the Construction Companies Patronage. According to Polizu, the purchase power of those willing to buy an apartment may slump, which will stop the re-launch of house construction.

According to Dan Ioan Popp, the buildings erected starting with next year will not be the only ones to become more expensive. “The price of already built houses will also increase. Prices will explode during the first three months of 2002 and then will stabilise, but they will still be bigger than current prices by 6-7%.”

VAT reintroduction will also affect the buildings contracted by the National Housing Agency (ANL).

“ANL has been working with money from the budget, building houses for 5,000-10,000 people annually, but the necessary money comes from the budget. Because of the budget’s situation, someone thought to make it bigger and one solution would be house VAT. So, a minority comprised of 10,000 people benefits from a small price, because the construction price for an ANL house is practically subsidised, but this subsidy is paid by the rest of construction consumers,” Dan Ioan Popp said.