Correcting inequalities in property tax
The Finance Ministry is seeking to remedy some serious inequalities in property taxation over the coming months in cooperation with real estate associations, part of another effort to adjust the property rates used for tax purposes and known as “objective values.”
This concerns various asymmetric methods in the calculation of values as well as the Single Property Tax (ENFIA), placing an excessive tax burden on properties (especially older ones) in major cities, while luxurious mansions or plots of land by the sea have very low taxation, benefiting from the fact they have been left out of the objective value calculation system.
A typical example of uneven property taxation is seaside plots in areas of high tourism interest. These properties – despite their increased commercial significance – are treated by the tax authorities as farmland. For instance, at the moment there is an 8,000-square meter plot near Santa Maria beach on the island of Paros, in the Cyclades, for sale for 460,000 euros with a building permit for the construction of houses totaling 400 square meters. The objective value of the plot comes to 134,000 euros, and the annual property tax is just 21 euros.
Likewise, a super-luxurious 550 sq.m. villa at Kalo Livadi on Mykonos, which is about 20 years old, with six bedrooms and five full bathrooms, and unhindered views of the sea comes with annual ENFIA dues of 1,010 euros, which amounts to just 1.8 euros per square meter, while the asking price for the property is 3.5 million euros. The objective value of the plot comes to just 150,500 euros because it is not within town planning.
According to property market professionals, the reason the property taxes of countryside homes are so low is that 90 percent of the properties for sale on the islands are outside town planning, therefore the zone rates (through which ENFIA is calculated) are particularly low. On the other hand, countryside homes in Greece are also the most attractive to foreign buyers, not only thanks to their exceptional quality-price ratio, compared to other regions in the Mediterranean, but also due to the very low tax they incur.
At the same time, 40- or 50-year-old flats in neighborhoods of central Athens such as Patissia, Kallithea, Kypseli, Pangrati, Ambelokipi and Vyronas bear double the ENFIA of the Mykonos villa: In Kypseli and Patissia the ENFIA rate ranges around 3.6 to 3.8 euros/sq.m., while in Pangrati and Ambelokipi it stands at 4.5-4.7 euros/sq.m.
The injustice is even greater if one considers the fact that these Athens properties have a commercial value that is at least eight times less than those of luxurious holiday homes. Therefore, not only do they incur a proportionately higher ENFIA, but they sell for a fraction of the price that country villas can fetch. True, they are within town planning, with the advantages this has in terms of utilities and infrastructure, but a rational adjustment is necessary.
It is this adjustment that is the objective of the Finance Ministry in the coming months. As the 2020 draft budget notes, “the adjustment of objective values based on actual values will contribute toward increasing the tax collection rate for properties in areas of the country where the objective value level is currently lower than the commercial value, as well as in regions with very high property values (luxury tourism areas) that were not taken into account until today. This intervention will allow for the further reduction of the burden on citizens who have paid disproportionately high property taxes.”
Early last week the committee set up by the Finance Ministry to reform the system of objective values held another meeting. Sources say that the immediate priority of the government for the time being is to avoid the errors made in the most recent adjustment procedure, when surveyors were granted just two months to recommend new zone rates, without allowing those with a personal understanding of their local areas to propose rates for them.
The long-term target is to create a system that will merge all existing databases from which information could be drawn about the actual market prices of properties, such as the register set up at the ministry in early 2018 to record all transactions through the contracts submitted online by notaries. There are also the databases of the Public Properties Company (ETAD) and the National Defense Ministry. The aim is to allow those that make estimates on the zone rates to have access to real market transactions.
Babis Haralambopoulos, former president of the Hellenic Valuation Institute (ELIE), says, “A full review of the commercially coefficients is required, as in some areas stores have shut down, while in others commercial activity has developed.” He adds that “the age coefficients should expand to properties that are more than 26 years old (i.e. built before 1993), with them being lower in areas where plots are more expensive (such as in Kolonaki, central Athens) and higher where the plots are cheaper.”
Haralambopoulos further notes that it is important for every property to have a single objective value, whether it concerns the transaction tax or ENFIA, “because today we have one value for transactions and another for ENFIA,” he points out.