Increase in real estate prices raises property tax levels

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The increase in land prices is costly for both the buyers of residential land and the landowners alike. Real estate tax revenues have increased by more than 30 per cent since the beginning of the millennium, rising to nearly EUR 870 million this year.
      The rapid change results from the rise in the taxable value of undeveloped land zoned for housing, which was lagging behind the general price development for a long time.
      For example, in the City of Espoo the average tax value of sites for detached houses will almost double in the course of the next couple of years. The previous raise took place in 1994.
     
According to the Tax Administration, previously the appraisal of prices was limited to the largest cities alone, and only since 2005 have the revisions focused on communities that are growing in size, and they have taken in larger areas of the country.
      Consequently, a rise in the tax value of residential land has already begun for example in the regions of Jyväskylä, Tampere, and Turku.
      The wave of tax valuation hikes will gradually move from the growth centres towards rural areas. During the current year, new rates have been published already for 30 municipalities. In addition to the growth centres of the Greater Helsinki area, a number of municipalities in the Lappeenranta region were involved.
      The highest annual increase in the taxable value can be 30 per cent.
      The National Land Survey of Finland (NLS) maintains a real estate market price register on all real estate deals and other transfers. The register contains the price paid for properties varying in size and intended usage.
     
Dozens of municipalities have been forced to increase their property tax rate as a consequence of financial problems. For example, the general property tax rate has been raised in 75 municipalities.
      Municipal revenues can also be raised by updating the taxable values of sites.
      "As a result of wrong prices some municipalities do not benefit from the real estate tax as much as they should, even though they can naturally increase the local income tax rate", says engineer Matti Holopainen from the Association of Finnish Local and Regional Authorities.
      Holopainen notes further that the proportion of the real estate tax in the Finnish taxation is considerably lower than elsewhere in Europe.
     
The growth in the real estate tax revenues is also partly a consequence of the fact that undeveloped residential land is now being taxed at a higher rate than developed land.
      A total of 129 municipalities have levied an extra property tax of one to three per cent on undeveloped land zoned for housing. The number includes 14 municipalities in the Greater Helsinki area, for which the extra tax has been mandatory since 2006.
      Matti Holopainen suggests that the pre-development land tax would encourage housing construction in the near future, and dissuade people from speculating with empty plots.
      All real property situated in Finland is subject to the real estate tax payable by those who own taxable property at the beginning of the calendar year. The revenue goes to the local municipality. The land used in forestry or agriculture is exempted.
      The majority of property owners will receive their property tax decision during this week. In most cases the sum involved does not exceed EUR 200, and if it is less than EUR 17, the tax is not levied at all. This affects around 10% of all those who would otherwise be liable for the tax.


Links:
  Government Institute for Economic Research (VATT)
  Tax Administration
  National Land Survey of Finland, NLS
  The Association of Finnish Local and Regional Authorities

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