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Spanish government asked to lower VAT rates on house purchases down to 4%

Lowering VAT from 10% to 4% on purchases of a newly built homes is one of the requests from the Association of Building Promoters of Spain (APCE). The idea is to make the real estate sector a primary driver of economic growth in the short and medium term.

The association has prepared a list of measures that they believe would provide the impetus so that very quickly the real estate sector becomes the engine of economic growth.

Here we investigate a few of the key points that were raised.

1. Reducing VAT on the purchase of first homes down to 4%, and to modify the VAT on transfers of land. A tax cut like this would allow significant savings for buyers. For example, for a house of 300,000 euros, the taxes due would go from 30,000 down to 12,000 euros.

It would not be the first time that VAT has been modified to encourage the property market in Spain. In August 2011, when the residential market in Spain had not yet bottomed out, the government decided to temporarily reduce VAT from 8% to 4% on new housing purchases. A measure which was intended to reactivate the construction and aid job creation in the sector.

2. Reinstatement of the option to deduct investments in your habitual residence from your personal income tax. This is a measure that was eliminated in 2012 but it is argued should be brought back.

3. Improving access to buying a first home. The APCE have requested guarantees and lines of credit in first-home loans similar to that seen in other European countries. In the UK, for example, the Help to Buy program has increased new homes purchases and facilitated young people access to their first home, through government guarantees.

4. Promoting the employment of young people in the construction sector, in collaboration with the State Public Employment Service, and the development of quality Dual Vocational Training in the next educational reform.

5. Streamlining urban planning licenses is seen as essential to reduce the timescales involved. Digitization of bureaucratic processes is necessary, which ultimately will result in lower costs of purchasing.

Over the coming months, a gradual return to normality and a reactivation of the property market is expected. This normality should come with very favourable conditions for the residential housing market to resume its growth.

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