With tax credits and subsidies, the government is aiming to get as many of the 900,000 foreclosed properties repaired and on the market as possible. The request is to increase the supply and to contain the rally in rents (but also in the sale prices of real estate), which are now moving at historically high levels.
The owners of these foreclosed properties, however, have to deal with the jump in the prices of building materials and the increased cost of money, which raise investment costs. On the other hand, as a disincentive for this type of investment in old properties, the high taxation on those with annual incomes from rents exceeding 12,000 euros, as well as the long delays observed in the performance of the lease in case the tenants are not consistent in their obligations, are treated as a disincentive their. Precisely because of the problems faced by natural persons, it is open to the possibility in the game of renovations to involve large companies that have both the investment capital and the ability to avoid high taxation, but also a better organization to deal with the “fez”.
Bank of Greece data showed that property sales prices have returned very close to the levels of 2007-2008, when historically high price levels were recorded. Because rents “track” property sales prices, this means that the incentive to bring foreclosed properties back on the market becomes stronger. The question, of course, is whether the owners of these properties – who currently have a negative return, as they pay ENFIA anyway – have the ability to take advantage of the conditions that have developed in the market.
Staff shortages
The main problem is the skyrocketing of the cost of building materials, but also the great shortage of technical personnel, factors that raise the cost of repairs. The latest figures published by the Greek Statistical Authority reveal that building materials have become more expensive by more than 25% in the last 2 years.
In this “basket” it is understood that labor is not included, the cost of which clearly depends on the demand that exists, but also on the supply, which has been limited in recent years and due to the memoranda that removed technical personnel from the country.
The request is to increase the supply and to hold back the rally in rents, but also in the sales prices of houses.
An aggravating factor is the increase in interest rates. If the amount required to repair the property amounts to 25,000 euros, the monthly installment even for a 10-year repayment period can reach 280-300 euros, as the interest rate on repair loans can now exceed 6%. In fact, this interest rate also requires collateral, which means expenses for the mortgage of the property. In fact, it also means risk, as while the loan installment must be paid every month, the rent is not guaranteed to be paid consistently (there is always the risk of unpaid rent, even for a number of months, due to the time required to complete an eviction).
Taxation
The net return on an investment to renovate a property is also affected by the taxation of rents. While companies are allowed to deduct investment income for property renovations and end up being taxed at 22% on the difference, individuals save only 5% of annual income for depreciation and are taxed at varying rates from 15% up to 45%.
The return on the investment, in fact, does not depend only on the income that the respective property will yield, but also on what the total rental income is.
Thus, for someone who rents a single property for 1,000 euros per month, the tax amounts to 1,710 euros per year or 142.5 euros per month, while for someone who has other income from real estate, the tax can even reach at 450 euros.
The result is, an investment of 25,000 euros with a loan to renovate a property, may end up requiring 300 euros per month to service the loan and another 450 euros for tax, reducing the rent of 1,000 euros to even 250 euros per month. month, without of course taking into account the risk of uncollected rents.
“Cutters” in tax deduction
The provision that was incorporated into the tax bill and provides for the possibility of a tax deduction of up to 16,000 euros over a period of 5 years (3,200 euros per year) in cases of costs of renovation or energy upgrading of properties, will be specified by a ministerial decision, which will essentially put “cutters” and even important ones.
What the ministerial decision will do is that it will establish specific recognition factors for the various expenses. Higher coefficients will be applied to the provision of services where the largest transaction is made with “black” and smaller coefficients in the purchase of materials. There will also be a classification based on the type of work. The purpose of imposing the reduction factors will, of course, be to contain the fiscal costs. As it is typically mentioned, the discount that is still applied today, but without having gathered the interest of more than 1,000 taxpayers (including the recognition of 40% of the expenditure and the exclusion of materials), could burden hundreds of millions of euros on the budget just by the appearance of electronic payments in building material department stores, which are not tax-evading anyway.
The “Renovate – rent” program, which will be announced in December, will have specific criteria (it will concern owners with assets up to 300,000 euros and an income of up to 40,000 euros) and will subsidize with 4,000 euros repairs of the order of 10,000 euros in properties with a surface up to 100 sq.m. A condition will be that these properties are rented for at least three years. The goal of the program is for the subsidies, which will amount to 50 million euros, to “return” to the state through the taxation of rents as the availability for rent of the renovated premises will be mandatory for at least one three years.
