Just a day after the impressive Turkish New Year celebrations came the government’s announcement of a number of KDV (the Turkish equivalent of VAT) increases to take effect in 2013.
Turkey’s popular newspaper, the Daily Zaman, on 2 January mentioned the implications based on an article published in the Official Gazette. This has resulted in concern from many residents and investors in property in Turkey.
Although the good news is that there are tax cuts in place on bank deposits and foreign loans, the government has felt it necessary to impose a number of new regulations, referred to as ‘hikes’ in the Zaman, following the need to increase state revenues after a deterioration in Turkey’s budget balances. These additions will be applied to separate taxes covering KDV (VAT) on luxury goods such as cigarettes and tobacco, vehicles (MTV), fees charged for vital official documents such as passports and driving licenses, and property and real estate in Turkey.
Most expected some of the rises like the tax paid on a pack of 20 cigarettes set to rise from 80% to 81.6%, but the real estate tax is one area that is causing concern. It appears that the KDV will now be defined in accordance to the value and size of the new property. If the property is less than 150msq with a value of between 500-1000TL per msq, the tax will be set at 8%. If the value per m2 is in excess of this, the buyer will pay 18% to the state. Today’s Zaman states the reasoning behind this to be, “to encourage construction firms to first sell their inventories before starting new projects”.
These new regulations will mainly affect developers and those looking to buy off-plan and custom new builds. It could mean that new build property house prices could rise by up to 20%, a steep increase especially for investors buying units on the wave of new off-plan projects in Istanbul. NazmiDurbakayım, Istanbul Contractors’ Association (INDER) President, believes that “only a few projects in Istanbul will remain unaffected by the tax hike, considering the majority of new houses cost over 1,000 TL per square metre to construct”.
We believe that these new regulations will undoubtedly have an impact on larger new build properties and villas in Turkey. We envisage that the price of custom and developer properties will increase to accommodate the tax, meaning that older and resale properties will become more attractive to holiday home, buy to let and retirement investors.
Whereas the past couple of years have seen a boom in new build investment, these new taxes will eventually highlight resale units as better value for money once developers have sold their old stock of part built or already licensed product. In general, it is great news for those looking to sell their private properties as their value should increase as a result, bad news for developers looking to build large properties in the future.
Your Questions Answered
What will these new KDV implications mean to me?
In simple terms it means that the tax payable on smaller new build properties in cheaper areas with a living size of less than 150msq, are likely to be charged 8% real estate KDV on purchase/completion. Those purchasing larger new build properties (150msq+) in prime areas and resorts may have to pay 18% tax to the state. Please Note: These KDV charges apply to new build, corporate developer projects only and not to older resale properties bought from an individual.
I currently have a new build/new property sale in progress, do I still have to pay the new tax?
We understand that these new laws came into effect as of 1 January 2013. Sales or purchases of properties that received their building licenses prior to this date are exempt from the new rule and the old KDV system should apply.
What areas will be affected most?
The low-entry off-plan projects in Istanbul and other major resorts are likely to be most affected. Although some developers may have seen these taxes coming and have made allowances for some of the tax increases, it is only a matter of time before they have to re-calculate their pricing structures, offers and up unit values as a result.