Adapting VAT and taxes

“The VAT problem is crucial for developers. If they have not sold the flats at the start of construction, then VAT on the part already built will not be due and it is impossible to recover this part of the construction cost. The result is a loss of 17%, on top of the fall in market prices that cannot be passed on. A mechanism combining registration duty and VAT until the end of the second year after acceptance would be welcome,” says , managing partner of Dentons Luxembourg.

“Leases for rooms rented out in coliving are not subject to VAT, which does not allow the developer to reclaim the VAT on the buildings. However, a circular issued by the land registry may consider that the rental of rooms with services such as concierge, laundry, gym, shared space or coworking could be subject to VAT without an option, in the same way as the rental of offices with services. Article 44(1)(g) of the VAT Act also provides that the exemption does not apply to the hire of tools, machinery and operating equipment of any kind. In the past, the Registration Duties, Estates and VAT Authority (AED) considered that the letting of furnished offices together with associated services--such as the right to display a business nameplate, the use of conference rooms, reception services or the allocation of a personalised telephone number--constituted a single transaction conferring the right to use a set of operating facilities, taxable at the standard rate of VAT. However, for the rental of rooms in coliving to be of interest, the VAT rate reserved for short-term accommodation establishments or hotels, i.e., 3%, would have to be applied,” says Gerber-Lemaire.

“VAT generalised at 8% (reduced rate, permitted by law) on construction (Belgium has just lowered it to 6%), with a rate of 3% for buyers of a principal residence, applicable on an amount of €75,000 to €100,000 (review the base, as it is never indexed),” says , partner at Lionstone Capital Management.

“Introduce the possibility of letting homes built from stock for a limited period of three years without the future buyer losing the benefit of the 3% VAT,” suggests , managing director of Kuhn Construction. And, he adds: “Adapt the current ceiling of €50,000 (reached from a construction price of €357,000) for obtaining the 3% VAT in new construction.”

“Exempt VAT for people wishing to acquire or renovate a building for personal residential purposes,” says Max Leners, avocat à la cour, Leners. He continues: “Tax unrealised property gains on an annual basis in cases where the building is unoccupied and the owner takes no initiative either to renovate, rent or sell the building in question.”

“Set VAT at 3% for investors,” suggests Luxreal chairman .

“Reduce registration duties for the share of land for first-time buyers,” says Louis-Marie Piron, founder of Thomas & Piron.

Favouring public-private partnerships

“The state and local authorities have unused land which, have not been developed due to a lack of human and financial resources,” say Thibaut Gasparini and Diane Baradel from Arcane Architectes et urbanistes. “Collaboration with the private sector, via calls for tender, would make it possible to speed up the creation of housing whilst supporting economic activity in the construction sector. As well as providing an effective response to the housing crisis, these partnerships would send a strong and reassuring signal to citizens, encouraging home ownership and property investment.”

“The private sector could help to do this whilst respecting precise specifications,” says Louis-Marie Piron.

“With, for example, affordable housing quotas, a binding implementation schedule,” says , CEO of Iko Real Estate.

“With the use of collaborative concepts bypassing the difficulties associated with public contracts such as the community of developers,” says , director of Poeckes.

Innovate

“Introduce simplified construction concepts such as ‘Gebäudetyp E,’ which helps to reduce construction costs by offering pre-validated and standardised models for residential and public buildings. The aim will be to offer pragmatic solutions by reducing the administrative burdens to be complied with (standards and regulations) without compromising quality or sustainability,” says Nathan, who offers another suggestion. “Set up pilot projects with modular and scalable housing to meet the changing needs of the population.”

And, Nathan adds, another proposal is to “promote intergenerational housing.”

“Create a soft loan scheme for craft businesses wishing to invest in innovative housing projects (e.g., low carbon construction),” says Nathan. And “facilitate access to European funding (e.g., InvestEU funds, EIB) for green building and energy renovation projects.”

“Reimagine housing so that it corresponds to the needs of tomorrow (and the day after tomorrow), to collective, multigenerational, multifunctional projects,” says , head of Luxembourg for Nextensa. And “create scalable housing that allows you to upgrade your home without too many administrative restrictions as long as it’s your main residence.”

“Propose more innovative architecture and putting aside the often conservative architecture that has been built in Luxembourg in recent years,” suggests Moulin. “Too many developers have prioritised profitability over the project itself in good times.”

“Create housing cooperatives following the example of Switzerland,” says Martine Gerber-Lemaire from Dentons Luxembourg. “The state or local authorities make land available to housing cooperatives, and the cooperatives offer an intermediate form of housing between traditional renting and private ownership. The rent is strictly linked to construction costs and it is a form of participatory urban planning. Tenants take shares in the cooperative society.”

“Encourage innovation and support virtuous projects: put in place a genuine aid package for businesses and individuals to encourage the construction of housing with efficient energy performance (class A+) and a low carbon footprint. This could include subsidies, tax incentives or preferential financing arrangements to encourage a transition to more sustainable construction models,” proposes Iko Real Estate’s Sandra Huber.

“Assess projects as a whole, without a silo view, and prioritise high-quality projects,” says , managing director of the Société Nationale des Habitations à Bon Marché (SNHBM), Luxembourg’s national low-cost housing administration.

This article was written in  for the  of Paperjam magazine, published on 24 April. The content is produced exclusively for the magazine. It is published on the site to contribute to the full Paperjam archive. .

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