Ultimately after years of total inaction the Spanish Govt has acted to try and cut the buildup of Spanish Property and more especially new build property by slashing the VAT rate on new build property from 8% to 4%. It is described as a short lived measure until the end of the year.

This is excellent news for the new build properties that we hold in numerous parts of Spain that have already been hugely reduced in price. Ally this to the weakening Euro, the pound was at 1.15 EU Dollars yesterday, and new build properties in Spain has just become much cheaper. Look out next week for a post about our properties at half price in Desert Springs, Almeria, Benidorm and Murcia.

But there are various good points and bad points to this move and I thought I would just give you my thoughts on the decision as seen from an estate agent in Spain.

• The cut should be applied to all property not just new build. As I have said before in this blog most of the new build property is of questionable quality in areas that there was no reason to build and so it’s of no consequence what the price is they will not sell. Cutting the tax on all home sales would move the market as a whole and increase tax earnings, although that may seem counter intuitive as the associated spend to a place purchase and the increased number of transactions would boost the economy more.

• Again the governing body is trying to bail out their friends in the banks and big developers with huge lobbying presences. At the same time in many parts of Spain this measure could crucify the individual seller attempting to sell their second hand property as the competition from banks with lower taxes and their refusal to pay for anything that’s not on their books, ie new build or repossession from developer, is hard enough as it is.

• It would not amaze me one bit to see developers sneakily raise costs by three or four percent. I will be keeping a watch on prices to see if that happens anywhere. However what really should happen is developers and banks holding new Spanish property stock should cut their costs too so as to give an enormous impulse to new build sales.

• I might expect banks to apply the measure as a publicity campaign to their stock of foreclosed second hand property. They are going to state “We will pay 1/2 your tax” in effect giving a 4% cut in the prices on their stock of older properties.
• I don’t expect there to be a rush to get new build houses as a consequence of the measure. Nonetheless anyone who was thinking of buying in the next year or so might well rush the exchange thru before the end of the year when the impulse runs out.

• If the period is not extended (see later on) I am expecting a lot of problems stories in the press next February when new build sales crash thru the floor after the impulse ends. My prophecy is there will not be any completions on Spanish new build property in the first couple of months of next year unless the developers and banks eat this cost by reducing the cost accordingly.

• Eventually, I expect the measure to be lengthened as the overhang of new build property will still be there at the end of the period and there will be no explanation for it to end.

How does one see the measure? Will it encourage you to step up your hunt for Spanish new build property or not?

Graham Hunt is an Estate Agent in Valencia. He writes about the Spanish Property for the Houses for sale in Spain blog and many other on and offline publications.