Taxation of real estate

(speech about the continuous taxation of real estate at the 5th Athens Law Forum on Taxation, published at

ΙIt is a fact that the relatively low real estate tax rate that was in place for many decades before 2010 contributed to the formation of a high rate of owner-occupied property in our country since such property used to be a means of storing wealth in an environment of high inflation and constant depreciation of the national currency.

According to older data by the Hellenic Statistical Authority (ΕΛΣΤΑΤ) as well as relevant surveys, in 2005 the percentage of homeownership in Greece was near 85%, significantly higher than the European average of 70%. This rate has been declining since 2010, reaching at about 74% by the end of 2016.

The decisive factor leading to this reduction was, among other things, the systematic choice of the Government to turn to a system of taxation targeting the possession of real estate, while until 2010 the bulk of revenues from real estate taxes came from relevant transactions (buying and selling). Indicative of  the situation is the fact that from 2010 to 2015 real estate possession taxes have increased sixfold, from € 500 million to € 3 billion, while in 2016 they have risen again to € 3,5 billion, with the annual aim of collectability from the real property tax (ENΦIA) being € 2,65 billion.

ΙΙ. History – Real Estate Taxation 

Over time, real estate has been one of the major sources of revenue for the state budget. In the case of immovable property, the subject of the tax cannot be “hidden”, so the taxes in question demonstrate theoretically high collectability rate.

The imposition of real estate possession tax was enforced in 1975, abolished in 1980 due to protests by owners, reinstated as Real Estate Tax (ΦΑΠ) in 1982 and abolished again in 1992. In 1993, the Real Estate Fee (ΤΑΠ) was imposed, collected through electricity bills. The Real Estate Tax for Large Property (ΦΜΑΠ) was imposed in 1997 with a tax-free limit of € 243.600,00 for natural and legal persons. From 2008 to present, annual taxes for real estate possession have been imposed with different names and methods of calculation (ETAK, ΦΑΠ, ΕΕΤΗΔΕ, EETA and today ENΦIA).

Taxation of the possession of real estate is certainly well-known in all European countries. In Greece, however, this kind of taxation, as implemented, has led to unprecedented distortions and injustices, while adaptation to European data has been very precipitous. Note that in the year 2017, Greece finds itself holding fourth place in taxation of real estate in the EU, after France, the United Kingdom and Belgium, with taxes equal to 3,3% of annual GDP.

In particular, ENΦIA is the only capital tax in Europe that due to the insufficiency of the state mechanism and the lack of a wealth registry, it was not calculated on the basis of the taxpayer’s real ability to pay, but solely on the basis of the collectability effect. ENΦIA’s tax base is related to the system of objective property values, which are not determined on the basis of real economic data and commercial values. Thus, the existence of objective values that significantly outweigh the commercial ones but also the opposite, that is, objective values which are significantly below the commercial ones, have led to a significant distortion which in turn causes “artificial over-taxation” of real estate.

The following example is worth mentioning.

A villa with a commercial value of € 4.000.000 in Mykonos, approximately 500 sq. m., costs annually taxwise € 1.350,00 (main ΕΝΦΙΑ), i.e. € 2,7 / sq.m. The corresponding amount for the annual main ENΦIA regarding an apartment of about 60 sq. m. in Kypseli, with an average commercial value of € 35,000-40,000 (that is about 1% of the value of the villa) is between € 3,5 – 3,7 / sq. m or about € 210,00 in total. In proportion to the value of the property in Mykonos (i.e. 1%), the property in Kypseli should cost taxwise € 13,50. What is more, if the objective value of the property in Mykonos equaled its commercial value of € 4.000.000,00, then for the same property both a principal and a supplementary ENΦΙΑ of about € 40.000,00 per annum should be paid, that is, equal to the commercial value of the aforementioned apartment in Kypseli!

The CoS (Council of State), vindicating taxpayers who have appealed to justice, has repeatedly condemned the Public Administration’s long-standing reluctance to determine the objective values of real estate in a way that corresponds to their real market value, but to date, despite the relative announcements, there has been no worth-mentioning effort to harmonize objective values with real estate market prices.

Furthermore, ENΦIA is imposed as a double tax – main and supplementary. The main tax, calculated per property and per sq. m. results in a relatively low tax burden, but the supplementary tax is calculated on the basis of total real estate ownership when the latter exceeds cumulatively the value of € 200.000,00 with graduated coefficients reaching up to 1,15%. The effect of this taxation system is that when the taxpayer’s total property exceeds the value of € 200.000,00 – which is usual for immovable property in urban areas according to the applicable objective values – the final tax burden reaches a multiple of the main tax.

This continuous over-taxation of real estate has a clear impact on the real estate market. Now, the construction industry contributes less than 1% of GDP (housing investment in 2016 dropped to 0,6% of GDP from 11% in 2007).

At a time when taxes on real estate in Greece skyrocketed, real estate revenues recorded a steep decline in the years of the crisis. It is worth noting that in the seven-year period 2010-2016 property income dropped by € 2,9 billion, falling from 8,9 billion in 2010 to about 6 billion in 2016.

III. Conclusions

In the light of the above, it should be noted that:

It is a fact that “artificial over-taxation” of immovable property deprives it from its essence, turning it from a right guaranteed by the Constitution and a multitude of International Conventions, to an unbearable burden for the owners. Due to the difficult fiscal situation of the country, the redistributory nature of real estate taxation over recent years has been converted into a money-collection tool, if not a “confiscation tool”, and the real estate instead of a major development tool has evolved into a means of covering financial needs.

However, the continuing taxation on real estate is not only an impact of the economic crisis on Greek society. It is part of a general effort so that the Greek market can adapt to the western European economic area, where property is not as much a means of storing wealth as it has traditionally been in Greece, but primarily a business activity. For this reason, even after the full recovery of the Greek economy, real estate taxation is not expected to fall back to pre-crisis levels, but any Government in office will consciously maintain a high level of taxation, equivalent to the European average.

Any Government, of course, will ideologically “color” its choices in real estate taxation, either pressuring the few and the large property as well as the businesses or expanding the tax base to the benefit of businesses, depending on the political area in which it belongs and the audience to which it is addressed, but it cannot affect the basic financial goal of collecting some billions of Euros annually from real estate taxes.

Despite the continuous taxation on real estate over the last decade, the low market values of real estate, which may in some cases, especially in Athens and major cities in 2016, have fallen short of the respective real estate values in capitals of neighboring Balkan countries, the introduction of investment incentives such as the GOLDEN VISA program, the increased demand for tourist properties and the skyrocketing of the short-term lease market, have led to a notable rebound in the real estate market, greatly increasing investors’ interest in real estate in Greece.

At a time when the Greek economy is trying to turn the page after about 8 years of continuous recession, the real estate market could be realistically reformed, starting with the harmonization of objective values with the corresponding market values as well as with the simplification of transfer procedures and the introduction of new tax incentives for the acquisition of real estate, in order to make a decisive contribution to the sustainable development of our country.