Tax Reform to Make Buying First Home More Expensive

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One of the changes is the abolition of the tax break for buying first property.

Starting from the beginning of next year, the tax on real estate transactions will be lowered to 4 percent, which will make it cheaper for some to acquire new properties. At the same time, the inheritance tax will also be lowered from 5 to 4 percent. However, for about ten thousand citizens who every year buy their first property, the tax reform will not bring good news, since the tax break for buying first property will be discontinued. Finance Minister Zdravko Marić justified the move with the obligation to comply with European directives which state that all buyers of real estate should be in the same position, reports Večernji List on November 6, 2016.

According to estimates, if a person buying his or her first property opts for a 50-square metre apartment worth slightly more than half a million kuna, they will have to pay about 22,000 kuna more. If they want to save the money, people planning to buy an apartment or a house have less than two months to find the right property, find the money and sign the contract.

Jasminka Biliškov, owner of a real estate agency, says that in recent days she has noticed an increased interest of potential customers, with more questions and phone calls than before, but it remains to be seen whether more transactions will be closed.

While potential buyers of their first homes are in a hurry, others who are not buying their first property or want to buy those properties which are not included in the tax break, such as garages, land, offices, graves and similar real estate, are not in a hurry because starting from January they will be able to save money. With a 50-square metre apartment, their tax liability will be 5,000 to 6,000 kuna lower.

Every year, about 30,000 apartments and houses are sold in Croatia and the supply is five times greater. In addition to the Adriatic coast, which has experienced a slight recovery, elsewhere the prices of homes have been stagnating, while average prices of new apartments have even been falling. Real estate transaction tax brings to the state budget about 900 million kuna each year, and in the future that money will be an income of local government units.

Several years ago, then Finance Minister Slavko Linić also wanted to abolish the tax break, but he suggested that the real estate transaction tax should be reduced to three percent. There are reports that the current government could also later further reduce the tax, or even possibly abolish it altogether, after it introduces annual real estate taxation based on the value of property.

Countries which tax properties usually do not have a transaction tax, while Croatia is currently in the group of countries which does have quite a high rate of transaction tax, which is in a way a substitute for property tax.


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