On 31.12.2020 the Government’s Emergency Ordinance no. 226/2020 on fiscal-budgetary measures and amending and supplementing of certain normative acts and extending of certain deadlines came into force. Said ordinance postponed until 01.01.2022 the increase of the threshold up to Euro 140,000, to which the reduced 5% VAT rate is applied for the delivery of housing as part of social policies, which have an area up to 120 sqm.

The reduced 5%VAT rate is an exception to the standard rate of 19%. As of October 2020 the Government announced the increase of the threshold corresponding to the reduced VAT rate for Euro 93,000 to Euro 140,000 for housing purchased by individuals, that have an usable area of maximum 120 sqm, excluding household annexes, value which includes the land on which they are built. Said increase should have been applied as of 01.01.2021.

Surprisingly, the Government decided at the last moment to postpone the enactment of the increase for one year, namely until 01.01.2022. In support of said decision, the Government argued that this measure would have had a negative impact of Lei 200 million on VAT revenues.

Given that said increase is a facility for potential purchasers, the demand for more spacious housing has been growing. Individuals who concluded preliminary sale agreements for the purchase of a house with a standard VAT rate, whose reception was to be made after said legal amendment would have benefited from the reduced VAT rate.

However, as a result of said postponement, individuals who signed preliminary sale agreements with real estate developers and paid a down payment in consideration of these legal provisions, respectively the persons who should have concluded the sale agreements in 2021 now have to tackle with a potential considerable increase in the price of real estate. If the price difference cannot be covered or if there will be no extension of the deadline for concluding sale agreements after 01.01.2022, individuals may risk losing the amount paid as a down payment, and developers risk having unsold properties, thus not being able to recover their investment.

Also, this amendment has an impact on the banks that should have financed these transactions, given that as a result of the 14% price increase, there may be buyers who will not meet the financing limit, thus they will no longer receive the loan to pay for the housing.

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