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BY GEORGE MOUSKIDES
We all know about barter trade, the exchange of products that our ancestors used and was the base for trade throughout the world when money was not widespread.
So, why mention this method? For the simple reason that in times of tight liquidity such as the present, the exchange of properties may be the solution.
Both buyers and sellers of properties find it difficult to conclude a transaction since the banks (despite the special packages that they have announced) have not revised their policy to start granting housing loans, with the result that the construction industry is still in a difficult situation. This is why exchange can be a solution.
How does this exchange of property work?
Very simple – I own a plot of land that I wish to sell and with the proceeds I wish to buy a house. Instead of selling, I exchange the plot of land with a house that suits me assuming the seller wishes to acquire the plot in exchange. Naturally the difference in value, if any, will be paid by the person that receives the property with the highest value.
The benefits from the specific transaction for both the buyer and the developer are many; we mention the most important:
• Taxation: The tax that both parties will pay is minimal in relation to what they would pay if the opposite occurred. For example, I have a plot of land that I inherited from my parents that is worth 300.000 euros today. For the particular plot, the cost for the tax department is 35.000 euros. With the indexation from 1980 (as calculated by the tax authorities) and the relative deduction that is allowed for first sale, the sum that I am eligible to deduct from the sales value of the plot of land is 135.000 euros. Consequently, I will pay a 20% tax on the difference of 165.000 euros, which means that I will pay taxes of 33.000 euros. If instead of selling the plot of land I exchange it with a house of same value, then I pay no tax, or I will pay tax only on the difference in value that I will collect in cash. Naturally, in order for this to occur there is a condition: both parties must be in possession of the titles deeds of the properties being exchanged. Thus, if the value of my plot of land is, as we said, 300.000 euros and the house that I will “buy” 280.000 euros, then I will collect 20.000 euros and pay tax (20%) on that, which amount to 4.000 euros.
• Transfer Fees: Neither the buyer of the plot of land nor the buyer of the house will pay transfer fees on the exchanged value.
• Psychological: both sellers feel that they got a good price as the values exchanged are hypothetical.
Finally, the exchange of two properties is in the interest of both parties especially if one of the parties is a developer who has unsold completed housing units that need to be sold.
Do not hesitate, therefore, to exchange your properties as it is in your best interest if done correctly. It is the solution to the crisis that we are experiencing today as well as a way to avoid the excessive taxation that the government is unwilling to reduce.
George Mouskides is Chairman of the Association for the Promotion of Property Development and Manager of Fox Smart Estate Agency.
