On 15 December 2015, the Hungarian Parliament introduced a new act amending the VAT rates currently applied on newly constructed residential real estate. With the start of 2016, the standard VAT rate of 27% will be reduced to 5% for the sale of newly constructed residences. Market experts anticipate a boom on the residential real estate market as a direct consequence.
Since the number of newly constructed apartments and houses dropped drastically during the financial crisis, the aim of the VAT regime's amendment is to fuel economic growth and to increase the number of residential real properties available on the Hungarian market. In 2009, in the middle of the crisis, only around 9,000 residences were developed in Hungary - a number not even remotely close to the 43,000 new residential buildings constructed in 2004. A sharp rise in new residential construction is expected due to the amendment, with experts anticipating the development of additional 3,000 – 5,000 apartments annually.
The act introduces the VAT rate decrease to multi-unit residential apartments, provided that their size does not exceed 150 sqm. Furthermore, the special VAT scheme is also applicable for the sale of single-unit residential properties (ie. residential houses) not exceeding 300 sqm.
In addition to the changes outlined above, it must be emphasised that the reduced VAT rate will only apply for sales closed after the entry into force of the amendment and shall remain effective only until the end of 2019.