Increasing taxes a problem for building industry

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Over a fifth of the cost of a new home goes on taxes and administrative costs, according to a new study

What goes into the cost of building and delivering a new home in Spain? Land, labour, materials, financing costs, and the developer’s margin, of course, plus administrative costs and taxes like building licences and VAT. The total mustn’t exceed what the market can afford, so if one price input goes up, and a price increase can’t be passed onto the end buyer, then another input must come down.

The problem for builders in Spain is that taxes and administrative costs have been going up whilst house prices fall. A study by Spain’s association of developers and constructors (APCE) finds that 22.18pc of the cost of a new home now goes on taxes and administrative costs including VAT, stamp duty, building licences, local rates and local plusvalia taxes.

So rather than help the residential building sector get back on its feet, this Government has smacked it over the head with higher taxes. The latest news is that a panel of experts looking at fiscal changes on behalf of the Government is considering raising the VAT rate on new homes to 21pc, which, if true, would spell the end of the Spanish building trade.

Luckily for builders, land and labour inputs have fallen in price, to compensate for higher taxes. But if this trend continues, it will soon be unprofitable to build new homes in Spain for anyone but wealthy foreigners.

Higher taxes on new homes mean Spaniards have to accept cheaper-quality homes.

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About Mark Stücklin

Mark Stücklin is a Barcelona-based property market analyst and consultant, and author of the 'Spanish Property Doctor' column in the Sunday Times (2005 - 2008). He can be reached by email on ms@spanishpropertyinsight.com.