real estate tax reform

On Friday, August 7, during a meeting with representatives of the real estate industry - appraisers, developers and investors, J. Bordāns explained the need to reform the real estate tax policy so that the planned cadastral values would not hinder business development and even promote, effectively releasing housing from RET payments.

Currently, the Ministry of Justice has submitted a draft law on real estate tax to the government, as a result of which 95% of housing would be subject to a 0 EUR RET payment. Representatives of the industry emphasized that Riga is lagging behind in the construction of new apartments among the capitals of the Baltic States and that opportunities should be sought to promote the construction of new housing with the help of RET.

The participants of the discussion agreed that the work on the improvement of the new cadastral values still needs to be continued - the necessary adjustments will be made, but they must not become a threat to growing RET bills. The Minister of Justice reaffirmed that he would not allow the new cadastral values to enter into force until the government had agreed on a change in the RET policy. The industry welcomed the efforts to streamline the RET system as a whole.

J. Bordāns: “We use the need to update obsolete cadastral values, which hinder the attraction of investments, in order to finally put in place the right to the inviolability of housing specified in the Constitution of the Republic of Latvia. Cadastral values are frozen only until a new RET policy is developed that protects housing and does not increase the tax burden on entrepreneurs and farmers.

Efforts to increase budget revenues by covertly increasing the real estate tax must be stopped. This is unfair and economically short-sighted. I am also pleased with the active involvement of the public so that the real situation in the real estate sector can be heard in the corridors of the government. Both the white flags movement and any other expression of public opinion will only strengthen democratic decision-making in the country."

Representatives of the real estate industry called on the parties forming the government to support the development of such a real estate policy that would allow reviving the real estate market and making Latvia attractive for attracting foreign investments. Representatives of the real estate industry welcomed the work started with the modernization of the SLS and the current development of the CV, which are separable from the existing RET rates. J.Bordāns and the participants of the meeting believe that the RET policy needs to be reviewed if we want to achieve the growth of the real estate sector and more and more people could afford new and modern housing.

“The announcement of the new cadastral values without changes in real estate tax rates has already caused damage to the Latvian investment environment. Our fees and taxes already were not competitive compared to Lithuania and Estonia. New homes, offices, hotels, factories and logistics centers are now threatened with at least a threefold increase in real estate tax payments from 2022. That is why we have launched a peaceful protest #baltiekarogi, during which white flags have already been hoisted by more than 50 buildings in Riga. With this campaign, we call for a “freeze” of the new cadastral values, as well as ask to prevent a jump in the actual payments of real estate tax. We appreciate the ongoing conversation with the Minister of Justice and look for opportunities for a dialogue with the government to correct the situation and bring the share of RET payments in investors' expenses to the level of Lithuania and Estonia,” says Mārtiņš Vanags, Chairman of the Board of the Real Estate Developers Alliance.

The current solution, without radically changing the system, is to “freeze” cadastral values, as well as introduce changes in regulations, determining that the cadastral value is 85% of the average market level, says Vilis Žuromskis, Chairman of the Board of the Latvian Association of Real Estate Appraisers, certified real estate appraiser. In the future, however, it will not be possible to scrape by with cosmetic repairs alone. In Latvia, as in Estonia, the possibility of taxing only land should be considered.

Vestards Rozenbergs, a member of the board of the Latvian Real Estate Association LANIDA, the owner of Baltic Sotheby's International Realty, emphasizes that it would be important for the responsible institutions to hear the opinion of the industry before announcing cardinal changes to the Ministry. Otherwise, the signals to citizens, businesses and foreign investors are disruptive and do not promote legitimate expectations. The freezing of cadastral values should not be done in order to alleviate the problem, but with the aim of creating a new, efficient RET system that would be proportionate to both the solvency of the population and entrepreneurs and would allow the calculation of tax amounts in the long run.