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Russian Real Estate – further tax burden on housing sales by individuals – lowers investment attractiveness of housing

According to Vedomosti, the State Duma is to consider amendments in the taxation of individuals selling their apartments. The key update is that the sale of one property in ownership is likely to be taxed, while exemptions could only be obtained after seven years of ownership.

The current tax regime allows individuals tax exemptions when selling housing if they had owned said property for more than three years. If the property was held for less than three years, the exemption covers RUB 1mn or the acquisition costs. The original aim of the tax law amendments was to separate the owners of the core housing from the leaselords. The former were assumed to be completely exempt from paying tax on the sale of properties, while the latter were to see a material increase in taxes on housing sales with key parameters largely set by regional authorities.

Today's update does not contain any tax exemptions for the sale of the core apartments, while the eligibility period of tax easing is extended to seven years. Although the outlook on the final tax metrics is vague at the moment, we believe the initiative would decrease the attractiveness of housing for investment purposes further and place an additional drag on residential demand following the implementation of the blended increase in the burden for property taxes.

Maria Kolbina, Nikolay Kovalev
VTB Capital analyst

real estate

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