The Bank of Lithuania calls for the introduction of a universal real estate tax, which should apply to everyone without exception

“Although there are no significant imbalances in the country’s real estate (RE) market yet, up to 20%. the targeting annual growth rate of house prices signals that the market is heating up.

The Bank of Lithuania has already taken measures to cool the high-risk housing market segment, but in order to avoid overheating, the attention of other institutions is needed to the topic of the hot real estate market, ”says Gediminas Šimkus, Chairman of the Board of the Bank of Lithuania.

The Board of the Bank of Lithuania has approved amendments to the Regulations on Responsible Lending regarding the application of a higher initial contribution requirement for non-first loans and plans to take a decision on 2% in the near future. the systemic risk reserve requirement for the mortgage loan portfolio of creditors.

According to the Bank of Lithuania, the total flow of all new loans could shrink by up to 10% due to the tightened initial contribution requirement and the planned reserve requirement for the mortgage loan portfolio, and the growth of housing prices could be up to 3%. points lower.

Double – up to 30 percent. – The increased minimum down payment requirement for subprime mortgages should affect around 40%. not the first borrowers, ie such a share would have to pay a higher initial contribution.

Mortgage interest rates would not be affected by these measures, which could increase by only 0.05% due to the additional capital requirement. point. At present, new housing loans are granted with an average of 2.12 percent. interest rate. It has fallen by 0.25% since the beginning of last year. point.

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According to G.Šimkus, an unpaid incentive to invest in real estate would be limited by a universal and socially oriented non-commercial real estate tax.

The Bank of Lithuania has submitted proposals to the Ministry of Finance that the real estate tax should be applied to all real estate without exceptions, establishing a cartel of the minimum tax-free value of property, so that the most socially vulnerable residents do not suffer. This fee should be progressive, ie the initial rate should be very low, such as 0.1%. and increase if high-value or luxury real estate is managed. This would mean that for the majority of the population, such a tax would amount to several tens of euros a year, and in regions where the value of housing is lower, it would be more symbolic or housing would be completely tax-free.

For a few hundred thousand euros or a million worth of luxury real estate would have to pay much more significant amounts – it would already be hundreds or even thousands of euros. Such a tax would significantly supplement the budgets of municipalities, and the received funds would be allocated for the management, maintenance and development of cities and towns.

Another measure is the mandatory registration of preliminary contracts for the purchase and sale of undeveloped dwellings. Such a legislative amendment would contribute to the transparency of the primary market, allow the Bank of Lithuania and other institutions to monitor real-time primary market transactions and price trends, the extent of speculative transactions, identify the risk of overheating of the housing market and take measures to reduce this risk.

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The current environment of rising expectations of rising real estate is creating a breeding ground for speculation, and assessing and limiting this phenomenon could reduce market tensions. The Bank of Lithuania has submitted proposals on mandatory contract registration to the Ministries of Justice and Environment and is awaiting their conclusions.

Finally, the reduction of the shadow sector in the real estate sector would promote sustainable market development, for example by legalizing the requirement to make an initial deposit or even the entire housing purchase transaction in a transparent manner and to limit cash settlements for real estate.

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