Key takeaways
In the context of the new federal budget, two measures contemplated by the Belgian Government may have a significant impact for the real estate sector, in a real estate market already facing high interest rates and rising costs.
I. Reduced VAT rate (6%) for demolition and reconstruction of residential buildings – Developers would be excluded
First, the reduced 6% VAT rate applicable to demolition/reconstruction of residential buildings would be significantly restricted as of 2024. In practice, we understand (subject to review of the legal texts) that private individuals would only be entitled to the benefit of such reduced rate when appoint a contractor to undertake the demolition/reconstructions, provided other specific conditions are met (including a limitation of 200sqm and the absence of other owned properties). Such regime would (as a rule) no longer benefit private individuals who would purchase a residential unit from a developer/promotor that has undertaken (or subcontracted to a contractor) the demolition/reconstruction works. Transitional measures for ongoing projects would be implemented but the details are yet to be defined.
Consequently, the vast majority of cases where such reduced rate was applicable will no longer benefit from this favorable regime, taking into account that a first-time private individual buyer is unlikely to proceed personally with such demolition/reconstruction works. This large abrogation of the 6% favorable VAT rate in the real estate sector will necessarily render residential units significantly more expensive (by 15%) for first-time buyers and further complicate the transition to more energy efficient buildings. As a consequence, light renovations of existing buildings (with limitations that they trigger in terms of energy improvement) for residential purposes will again become (comparatively) more attractive, as the sale of such assets will remain subject (as a rule) to lower registration duties (instead of 21% VAT for new constructed residential building sold by developer/promotor).
II. Increase of registration duties (5% instead of 2%) for leasehold rights and building rights
Second, we understand that an increase of registration duties would be contemplated for leasehold rights (droit d’emphytéose/erfpachtrecht) and building rights (droit de superficie / opstalrecht), from 2 to 5%. The scope and conditions of such increase are not yet clear, including whether this would also apply to transfers or extension of pre-existing rights and whether a minimum tax base would be applicable. Nevertheless, the change is likely to significantly increase costs for developers that rely largely on such rights in the context of their projects and to limit the attractiveness of the new volume ownership regime introduced in 2021 by the federal parliament, as this regime would normally also fall within the scope of the increased rate.
The impact will not be limited to commercial and residential real estate. The tax increase may also have an important negative impact for the hotels and senior facilities sectors, specifically in the context of extensions or renewals of their occupation. Industries, logistics and banks will also be impacted, as popular financial leasing and sale-and-lease-back structures may be impacted as well, potentially triggering an increase of 2 to 5% in both legs of the transaction.
Real estate actors contemplating transactions in the next months should therefore have those measures (and the timing of their entry into force) in mind. The legal texts should also be analyzed in detail when available to fully understand the scope and conditions of such changes. We are at your disposal to assist you in that context.
