Reduced VAT rate of 5% again for new flats

At the beginning of October 2020, the Prime Minister has announced that the Hungarian Government continues the family protection measures and for this purpose, the VAT rate of new flats will be again 5% instead of the general VAT rate of 27% in case of constructions commenced until 31 December 2022. It is not yet clear whether this deadline is applicable for the existence of the building permit or the commencement of the actual construction, since until now the bill regulating the amendments has not yet been published. However, the provisions on the reduced VAT rate will enter into force on 1 January 2021 and will be applicable expectedly for flats to be constructed or existing in a multi-unit residential building with a total net floor space not exceeding 150 square meters or for one-unit residential properties with a total net floor space not exceeding 300 square meters as it was regulated until 31 December 2019.

In addition, the state secretary responsible for family and youth affairs has also announced that in case a family purchases a new apartment using the Family Housing Subsidy Program (Hungarian abbreviation: “CSOK”), the reduced VAT rate of 5% may also be recovered from 1 January 2020.

The above measures may result in the construction of 100-200,000 new flats in the following 5-10 years and may also have an effect to the prices of the older flats.