<em>Subtle change in VAT will increase apartment prices by tens of thousands of crowns</em>

Prague - An inconspicuous change in the value added tax (VAT) law, which was approved by the Senate through a legislative measure at the beginning of October, is likely to increase the price of new apartments by tens of thousands of crowns starting January 1, 2014. From now on, a 21% VAT will also be charged on the land under new constructions. The price of the land constitutes up to 30 percent of the price of a new apartment, so potential buyers of the smallest studio apartments will have to pay an additional 80,000 crowns. Developers approached by ČTK have confirmed that due to this, the prices of offered apartments and houses will rise. The legislative measure still needs to be approved by the Chamber of Deputies at its first meeting, which is expected to take place on Wednesday.
    "From January 2014, only those plots of land on which no building connected to the land is established with a permanent foundation or engineering network and on which no construction can be carried out according to a building permit or the approval of a notified construction will be exempt from VAT. Other plots will be subject to value-added tax starting the New Year," said Michal Ševčík from the law firm Vilímková, Dudák & Partners to ČTK, adding that they will be exempt from VAT only after five years from the issuance of the first occupancy permit.
    "If the VAT on land really increases from the current zero to 21 percent, it will certainly be reflected in the prices of new apartments with an increase. However, the apartments will not increase by the entire 21 percent; the price increase will correspond proportionally to the price of the land," responded the CEO and Chairman of the Board of Ekospol, Evžen Korec, adding that the price of the land represents approximately 15 to 30 percent of the total price of the apartment.
    According to the financial director of the development group Finep, Štěpán Havlas, the change in the payment of VAT on family houses or building plots will have an even more pronounced impact. "In the segment of newly built family houses or the sale of individual building plots to clients, the introduction of VAT on land will have a fundamental influence on the price. In this segment, it can be expected that this could be a significant factor for an increase in sales by the end of this year," Havlas declared.
    The change is related to the new Civil Code, for which the Senate adopted a legislative measure amending the property tax law on October 9. Once the Chamber of Deputies approves the legislative measure, this legal modification will take effect on January 1, 2014. The leader of the strongest parliamentary party, the ČSSD, Bohuslav Sobotka, has already declared that all legislative measures will be approved.
    Korec from Ekospol criticizes that such important changes are again being approved at the last minute. "I consider it absolutely irresponsible to approve proposed laws with effect from January 1, 2014, practically at the end of 2013. In this case, I would label the Czech Republic as a legislative Kocourkov," Korec bluntly expressed. According to him, they are already registering a "massive wave" of priority payments from clients who want to avoid the price increase. "VAT is due at the moment of payment. Therefore, clients are trying to pay for their apartment by the end of the year, especially those who already have mortgages arranged for precise amounts," added Korec.