The possibility of new taxes in the housing sector is being discussed.

Despite the rapidly increasing demand for housing in recent years, the housing market is experiencing one of its most stagnant periods due to the price bubble that has occurred in the market especially since the pandemic and the suppressed demand due to excessively rising loan interest rates in the last year, while the claim of new tax regulations for the real estate market has caused different reactions and general uneasiness in the sector. led. Within the scope of the proposed law, which is claimed to be on the agenda of the Turkish Grand National Assembly next month, official transactions will be made based on the actual sales price with a mandatory appraisal report for all real estate sales, and a value increase tax will be collected from houses sold after being held for more than 5 years, and a multiplied property tax will be collected from those who own more than one house. The news worried potential buyers who were planning to buy a house for both investment purposes and residence. It is a common view that prices will rise because the additional costs brought by these regulations will be added to the sales prices. Comments come to the fore that after these regulations, the attractiveness of housing investment will decrease and the stagnation in the sector may deepen. Meanwhile, claims that the annual exemption amount for income tax collected from rental income will be abolished have led to comments that the general rent level will increase due to the possibility of adding the income loss suffered by those who rent a house to the rental fee.

Value increase in housing
In current practice, if a purchased real estate is sold before the end of five years, the difference between the purchase and sale price is considered as "capital gain" and income tax is collected on it. If the purchased real estate is sold after five years, tax collection is not possible. It is claimed that with the new regulation, the 5-year limit will be removed and tax will be collected on capital gains on all sales, regardless of the holding period. It is a common practice to declare the sales price of the declared real estate in title deed transfer transactions below the actual acquisition price. In the new practice, it is stated that the real value will be declared during buying and selling and a fee will be collected on this.

 
In determining the capital gain, the price appearing in the title deed records on the date of purchase of the house subject to sale by its current owner is updated with the increase rate in the domestic producer price index (PPI) until the date of sale. In this way, the current value of the price at which the current owner of the house purchased the relevant house is found. This updated purchase price, along with the paid title deed fee and loan interest payments, if any, are deducted from the current sales price and the "net" capital gain is calculated. From this amount, the tax base is calculated by deducting the exemption amount determined every calendar year. The exemption amount in question was determined as 87 thousand lira for 2024.

Calculation of tax to be paid
In the progressive system, according to the income tax tariff determined for 2024, 15 percent is applied to the part of the income up to 110,000 TL, 20 percent to the part between 110,000-230,000 TL, 27 percent to the part between 230,000-580,000 TL, 35 percent and 3.0 percent to the part between 580,000-3,000,000 TL. 00 A rate of 40 percent is applied to the amount above 000 TL. Accordingly, in April 2019, the purchase price in the title deed, title deed fee, loan interest, etc. Someone who sold his house, which had a purchase cost of 300 thousand TL, consisting of the sum of the factors, for 5 million lira in March 2024, will find the cost updated with the 607.9 percent inflation in D-PPI during this period and 87 thousand lira, since the five-year compulsory holding period has not expired. After deducting the exemption amount, it paid 586.3 thousand TL tax on a base of 2 million 789 thousand TL as a net "capital gain". If a house purchased on the same date and whose acquisition period expired in April this year is 5 years, is sold today, no tax will be paid because the holding period has expired according to the current legislation.
However, if the amendment to the law that removed the 5-year limit had come into force, the capital gain calculated on the purchase-sale price difference would be subject to tax. The total purchase price, which was 300 thousand TL on the mentioned date, will be accepted as 2 million 272.7 thousand TL when updated with the inflation (D-PPI) of 657.6 percent between April 2019 and April 2024. Assuming that this house was sold for 5 million lira in May, 87 After deducting the exemption amount of 1,000 TL, a tax base of 2 million 640.3 thousand TL would be created as a net capital gain, and the seller would have to pay approximately 534 thousand TL tax on it. If the same house is sold after the law is enacted, it will be taxed on the difference between the purchase price and the sales price, which will be updated with the inflation that will occur as of the date of sale.

How does the tax affect the housing market?
Experts point out that making an appraisal report mandatory in all real estate sales, carrying out official transactions on the actual sales price, and collecting capital gains tax on houses sold after being held for more than 5 years may have harsh effects on the housing market. It is stated that the housing market will initially become more active as the number of people who want to buy and sell increases before the new regulation comes into force, but this situation will reverse after it comes into force. It is stated that people who will sell their houses will want to impose the tax on the buyer, people who will buy a house will have to pay more, and it will be difficult for those in need to access housing. It is emphasized that the tax will have a deterrent effect on the purchase of housing, especially for investment purposes, over time, that those who have money will not prefer to invest in housing because it will reduce the attractiveness of housing investment, that when the demand for housing decreases, production will also decrease, the phenomenon of tenancy will grow in this process and rents will rise.

What if the exemption for rent is lifted?
On the other hand, resetting the income tax exemption amount that homeowners who rent a house are obliged to pay is also on the agenda. It is stated that if the exemption from the tax on rental income is removed, the rents, which have increased excessively in recent years due to increasing demand, will increase even more. The annual exemption amount for the tax on rental income is 33 thousand liras for 2024. Accordingly, a property owner with a monthly rental income of 15 thousand TL will pay 25 thousand 900 TL tax based on the 180 thousand TL income he will earn in a year, based on the tax base of 147 thousand TL after the exemption, according to the current tax brackets. If the exemption is removed with the new tax regulation, the rental income tax to be paid by the same landlord will increase to 30 thousand 500 lira. If the annual exemption amount is abolished, the tax to be paid by a homeowner with a monthly rental income of 20 thousand TL will increase from 35 thousand 900 lira to 43 thousand 200 lira.

Investor interest shifts to TRNC
It seems that the interest of housing investors has recently shifted to foreign countries, especially the Turkish Republic of Northern Cyprus (TRNC). The housing sector in TRNC, which the world-famous Forbes magazine lists as the most profitable country to buy property abroad in 2024, is recording a record increase in demand due to factors such as exponential value increase, short depreciation period and rental income in foreign currency (Pound). TRNC, where new construction projects have started one after the other, is being flooded by Turkish real estate investors as well as foreigners. Turkish citizens are the most popular for housing investments in TRNC after Russians, Iranians and Europeans. In addition to Iskele, Kyrenia, Famagusta, Esentepe and Gaziveren are among the most popular locations for real estate investors in TRNC. The price of 1+1 flats for sale in TRNC starts from 55 thousand Pounds. The rent of a 1+1 flat in Kyrenia center varies between 400-650 Pounds. The explosion in the interest of home buyers in TRNC has given a record momentum to the construction sector on the island. New housing projects of many local and foreign contracting companies are added every day in parallel with the ever-increasing demand. 

Source: https://www.dunya.com/kose-yazisi/konut-sektorunde-vergi-tedirginligi/729004