VAT 5% law has led to postponements
Since January 1, 2021, new rules should have applied for the purchase of a home in Romania, stipulating a reduced VAT rate of 5%. The measure triggered a positive signal for the real estate market. However, on the last day of 2020, the government issued an ordinance to postpone the new rules until the beginning of 2022.
This means that currently the reduced 5% VAT rate can only be applied to housing units worth up to 450,000 lei (around 90,000 euros, without VAT) and if the net usable area is below 120 sq m, excluding household annexes.
As of next year, the cap for 5% VAT will increase to 140,000 euros or its equivalent in the local currency.
These mixed signals created confusion on the residential market and many buyers decided to postpone acquisitions until next year.
As Cristina Grecea, a public notary, explained during CEDER 2021, “many clients postponed for 2022 and over 50% of them gave up buying a property. Now everybody is waiting.”
She said this lack of predictability affects everybody, not just buyers, but also developers “who increased the quality and the surface area of apartments, hoping they would sell more units.”
Simona Chirica, partner at law firm Schoenherr, said that to some people the 5% VAT was an essential element.
“This is why they were ready to sign for a bigger and more expensive apartment or house. After the government announced the measure would only apply starting next year, it raised problems,” Chirica explained.
In some cases, clients accepted the regular 19% VAT rate and went ahead with the purchase, but others dropped out, as Irina Caraene, Sales Director of Cordia explained.
“We discussed it with our clients, and some of them accepted the 19% VAT and had to renegotiate their credit loans, but others dropped out. For the second phase, we had lots of sales of three-room apartments taking into consideration that starting 2022 the new regulation of 5% VAT will be applied,” Caraene said.