Residential sector to continue reaping tax break benefits
The flood to buy new homes and construction materials to beat the deadline for tax incentives on housing proved short-lived last fall.
The upside, however, is that the industry is on target for another year of steady revenue streams and probably more stable long-term growth in the housing and construction material sectors, market watchers said. And potential homeowners are sufficiently primed to buy, they added.
Under the Finance Ministry's proposed tax code crafted last year, tax incentives for housing construction were scheduled to end Dec. 31. As the bill wound through government and legislative hallways, the window for housing breaks remained on schedule to close. Then in the final hour in late November, the president reopened the window and reinstated the popular loophole for existing and potential homeowners.
"Tax relief is a huge engine behind the residential market," said Slawomir Kwiatkowski, vice president of the PAX cooperative, which develops multi-family residential housing in Warsaw.
Earlier this fall, interest in buying new residences and purchasing construction materials rose sharply amid expectations of the end of tax benefits that allowed taxpayers to deduct 19% of costs to purchase newly constructed residences from their income tax. Taxpayers also could qualify to deduct up to zl. 2,457 in costs to renovate existing homes and apartments. But major benefits to new homeowners appeared doomed last fall, as Parliament gave the nod to lifting deductions for new housing although keeping the clause that would grant incentives to upgrade existing units. Consumers watched political developments closely and headed for stores and agencies to qualify for tax breaks before the year-end deadline, industry members said.
"Customers were streaming in," said Cezary Karpinski, sales representative in Warsaw for window maker Pomorska Fabryka Okien (PFO).
But as quickly as it rose, consumer interest faded in the wake of President Aleksander Kwasniewski's veto of the proposed tax bill signaling that tax breaks on housing are here to stay at least in the short term. "In November customer interest was higher, now everything has settled," said Mila Paczynska of Sylwan, a Lodz-based producer of windows and doors.
The risk that housing deductions would be eliminated resulted in a 30% increase in interest, according to some industry members. That interest, however, didn't translate immediately into sales as the decision to invest in new homes takes time, they said.
Even the decision to buy windows is not made overnight, said Karpinski of PFO. That's because it's part of the bigger issue of whether to buy or build a new home, he said.
Thus, keeping tax incentives in place for at least another year sends an important signal indicating more sustained growth in the sector, industry members said.
Although the construction industry nationwide did not witness a revenue windfall this fall, the sector reported sales rose 2.6% through the end of October last year compared to the same 10-month period the year before, according to figures from the Central Statistical Office (GUS).
But sales are up significantly in the Warsaw area, according to some material retailers in the capital. "Last year the market didn't exist," said Paczynska of window-maker Sylwan. "There is significantly more money on the market," she said.
While industry members said they were pleased to see the window for tax benefits remain, many said they couldn't have received better advertising from the threat to close the tax incentive.
"The end of the tax deduction was a great advertising slogan," said Kwiatkowski of PAX. Until it was clear that the deduction would be extended "there was huge interest," as customers wanted to make a quick decision to invest in residential properties. With consumer interest now primed, builders can drive the sale home by advertising their projects as "the last chance to benefit from tax deductions," Kwiatkowski said.
