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Ministry of Finance proposes new property tax rates

According to Kommersant, the Ministry of Finance has announced the preliminary parameters of the new property tax law. It sees the market value being taxed at 0.1% per annum for residential property, 0.5% for commercial property and 0.3% for agricultural land under homes, as well as 1.5% for other land. The rates would only apply to individual taxpayers and are to be implemented in 2014-18.

This is a new milestone in the process of switching from the book value to the market value of properties for tax purposes. Previously, the Federal Tax Service estimated that the average property tax burden was to increase from RUB 700 per flat at present to RUB 1,900, implying a surge of 2.7x. However, final charges are subject to tax exemptions from the regional authorities, which would have the right to grant tax breaks.

The law has limited implications for the investment cases of Russian homebuilders. The primary market is largely driven by the need to rectify the housing shortage, while the share of investment apartments, which would be sensitive to such tax issues, stands at a modest 10-15%. Our recent conversations with the companies also point to the declining average size of new apartments and a greater share of the young in the costumer pool, both parameters which are more likely to be affected by tax breaks. 

Maria Kolbina, Nikolay Kovalev
VTB Capital analyst

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