Property transactions in Greece are now taxable at 3%, under the new law which came into effect this January. This is a huge reduction from the 8% on the first €20,000 of the property’s value and 10% for amounts beyond the first €20,000 under the previous tax regime.
Where will the lost money come from? The new unified property tax will shift the burden to ownership. It will apply not only to residential and commercial properties, but also to vacant lots, sports fields, farms and agricultural land. All property taxes including temporary emergency taxes are now unified, and the taxation base expanded to cover all types of real estate, whether income-generating or not.
Greece has been deep in recession for the past six years and has had to be bailed out by the EU-ECB-IMF troika. The recently passed tax measure is part of a series of structural reforms that it has agreed to undertake as condition for availing from a €240 billion rescue package from the troika.
Passage of the measure was met with much resistance locally since it would be affecting a larger proportion of the population. Before, only those with relatively big landholdings were taxed. Now almost everyone will have to share in bearing the tax burden. Greece has an 80% home ownership rate, one of the highest in the world.
While the new unified property tax hews close to the model prescribed by the troika – one where burden is shifted from transfers to ownership – for 2014 it is expected to generate only €2.65 billion in revenue, lower than the €2.90 billion collected under the old tax regime. To cover the budget shortfall, the government will cut planned investment spending.
Property prices have already dropped by 32% over the last four years, according to the country’s central bank. The new property tax law could drive them further down.
“This law leads to the collapse of the [property] market, instead of reducing the excessive taxation which has already stalled transactions,” complained Ioannis Revithis, the head of Greece’s real estate agent association Omase.
Foreign buyers of course benefit from a market collapse. “Over-taxation causes property devaluation, which works to the advantage of foreign investors who want to buy at very low prices," said Michalis Georgiou, an Omase member.
"2014 will be a crucial year for real estate. Prices will further drop by up to 20%.”
Already, foreign buyers and investors from non-EU countries are being offered Greek residence permits for purchasing or renting property worth over €250,000.
Greece now holds the EU presidency. "At the end of the Greek presidency, Greece will be back on its feet and Europe will have taken a major step to exit its crisis," promised Prime Minister Antonis Samaras. "What was once Europe's 'weakest link' will be a symbol that Europe works, Europe can, and Europe will make it."