The good, the bad and the VAT

While the Polish government works out its position on the VAT rate for construction services and materials, residential developers say that one third of their number won't survive an increase from 7% to 22%. But could a disaster for the primary market prove a blessing for the secondary market?

A few weeks ago 40 Polish developers sent a letter to the Prime Minister asking him to change Poland's stance in negotiations with the EU concerning the proposed 22% VAT on the sale of new flats, building materials and construction works. The letter stated that if VAT increases, 30% of construction companies will go bankrupt with the loss of a staggering 400,000 jobs.
But while such an increase would undoubtedly be bad news for the primary market, could it actually kickstart Poland's secondary residential market? Prices would almost certainly increase, says Dariusz Witkowski of Polish agency Maxon Nieruchomosci. ,If VAT goes up then the price of new flats will grow too, but not to the same extent, otherwise people wouldn't buy. So in turn secondary prices would automatically increase," he said, although he added that flats in the 'large panel' communist style blocks wouldn't be affected, especially those in unattractive locations.

Although she claims not to be able to predict the future, Magdalena Bernatowicz of agency Unikat says interest in the secondary will increase. ,I don't know if prices will grow - I can't predict the future - but interest in the secondary market is bound to go up. But the possibility of impending price increases doesn't make me happy as I prefer to sell a number of cheaper flats than a few more expensive ones. Even today - despite what other agents say - prices aren't low," she said. Bernatowicz goes on to comment that the residential market in Warsaw suffers from a narrow price range and a shortage of choice for wealthier customers. Yet while there are not enough top-quality flats in exclusive locations, there are an abundance of cheap flats in undesirable locations, but people who can't afford better flats don't want to buy these cheaper flats because the standard is not up to scratch. In other words, there are people who are looking for flats, but both in the top and middle range, there isn't the choice to satisfy them.
Whether prices in the secondary market grow and by how much it's not possible to say, but it can be said that prices in the secondary market shouldn't drop any lower if there's a VAT hike on new flats.