Vicente Furnaro, tax attorney and partner at Tax Defense.
The current tax reform project aims to end VAT on furnished leases. An innocent and apparently benevolent headline behind which is hidden a piece of news that represents a severe blow to the real estate world and, particularly, to the growing market for residential or multifamily rentals, a business area that is growing exponentially in the United States and consolidating in Chile.
Its greater resilience to economic cycles and fluctuations, its high occupancy rate, guaranteed flows over time with rapid business stability, high rental prices, the equity support provided by the property itself, the difficult access to mortgage credit for customers and the country’s housing deficit, among other reasons, have transformed this market Built To Rent in one of the most desirable in recent times, doubling its demand in the last two years. Added to this is an existing complementary market such as the ant or inorganic market that corresponds to small investors who can also access one or more rental units.
This healthy business environment, which creates several hundred thousand jobs per year and which provides an obvious housing solution for young and growing groups of immigrants, intends to be captured by the tax reform under discussion, which seeks to put an end to the tax benefit of the anticipated refund of VAT associated with the purchase or construction of these buildings, through the elimination of VAT on furnished leases (an element inherent to a residential rental building). The foregoing will then prevent requesting the advance refund of the VAT paid on the purchase or construction of the buildings in question, since the investor will not have a way to prove the future restitution of that advance, by leasing them from now on exempt.
In terms of financial evaluation of projects such as these, our experience indicates that a plan for the construction or purchase of buildings for residential rental contains close to 1 percentage point associated with the anticipated VAT benefit, calculated on a total internal rate of return of 7 %. In other words, when this franchise is eliminated, the profitability of the project drops significantly, enough to tip the balance towards the decision not to make this investment.
At the end of the first half of 2022, the accumulated stock in the multifamily world accounted for 89 buildings in operation, with more than 21,000 units and with an average occupancy of 97%, awaiting the entry of 46 new projects during this period. year, which would incorporate an approximate volume of 12,500 units into the stock. Hard, true data that makes one of the few areas of the economy that grows and develops in our complex economic scenario stand out.
whatTherefore, a greater effort of legislative creativity that protects the development of a business area with such a level of positive externalities has not been possible.? whatAn interest rate associated with that VAT advance, for example? whatOr the end of the reduction of 11% of the tax assessment in the VAT application base, in order to speed up its restitution? Once again, the simplicity and the imbalance in the approach, the black or white in the look, the all or nothing in the decisions, lead a proposal whose negative effect will far exceed the expected collection result.
Dominated by a simplistic, fragile and spontaneous vision, explained by a single point of view of looking at things, without contrasting it with other visions and lacking the minimum skill and legislative creativity that we should demand as citizens, we will see how these scarce spaces for economic development that we still have, become a simple swag without a horizon that pretends to be prey to this new tax illusion.