Finally, the Spanish government, 13 months after increasing VAT from 7% to 8%, have decided as a temporary and exceptional measure to reduce VAT on new builds to 4%. This reduction applies to new builds only and not to pre-owned or re-sale units.
The announcement came today (19 August 2011) from José Blanco, Minister for Development and Elena Salgado, Economic Vice president, following a ministerial meeting.
The reduction is with immediate effect and will be maintained until 31 December 2011.
José Blanco says this measure is aimed by reviving the construction sector and creating employment in one of the sectors most affected by unemployment and is just one of three measures adopted by the Council of Ministers aimed at fiscal consolidation and deficit reduction.
Despite some cities having a high demand for new housing there is a a lack of available finance to start these projects due to the vast sums of money already tied up in completed and unsold properties throughout Spain. There are approximately 700,000 unsold completed new homes throughout Spain.
A further problem to kick starting the construction sector is the distinct lack of any financing or loans to potential buyers and José Blanco advises he is already in discussions with the Instituto de Crédito Oficial to address this problem.
Whilst the move is welcomed it is unlikely to have any significant impact on a decision to buy in Spain. Possibly more could have been achieved by reviewing Spain's inadequate legal system and regulating conveyancing and insisting banks honour bank guarantees. Many foreign buyers have paid over their lifesavings and received absolutely nothing in return and some have been tied up in the Spanish legal system for 7+ years seeking the return of deposits paid. Furthermore the local authorities (e.g. Junta de Andalucia) continue to extract additional transfer tax (stamp duty) from buyers based on their deemed or artificial prices such that the effective rate of transfer tax is in excess of 10%.
Published 19 August 2011
