Increase in military tax will lead to higher prices, reduced demand in new housing market – developers

Increase in military tax will lead to higher prices for new housing already in the first half of 2025, and may also lead to reduced demand due to reduced purchasing power, according to Ukrainian developers surveyed by the Interfax-Ukraine agency.

"The increase in taxation when buying real estate is an additional factor that will affect the growth of prices. From December 1, 2024, the military tax increased from 1.5% to 5%, covering almost all real estate transactions. This will lead to an increase in the cost of registration of transactions related to all objects where the ownership right is less than three years old, as well as new buildings. The consequences of the increase in military tax may be a decrease in transactions in the real estate market, a decrease in purchasing power and an increase in the cost per square meter," the press service of City One Development said.

According to it, in 2024, average prices on the primary housing market in Kyiv increased in hryvnia by 14%. At the same time, in dollar terms, apartments in the economy class fell in price by 5%, in the comfort class – by 6%, while in the business category they increased by 2%, in the premium – by 8%.

The increase in prices was significantly influenced by the increase in the cost of construction, which in 2024 continued to be pressured by inflation, the exchange rate, the rise in the cost of construction materials, complicated logistics, a shortage of skilled labor and energy costs. According to Iryna Mikhaliova, CMO Alliance Novobud, next year, these factors will be supplemented by an increase in military tax.

"An increase in military tax to 5% will certainly affect the cost of real estate. The first to rise will be the cost of construction materials, logistics, and contracting services. I think the changes will have a short-term effect, when the increase is partially offset by stocks of materials on hand and long-term contracts with suppliers, and a medium-term effect, when over 3-6 months there will be a gradual increase in the cost of construction work and materials due to the growth in developer expenses," she said.

Zezman Holding also predicts a noticeable increase in the cost of construction in the first quarter of 2025. As its founder and CEO Boris Goldenstein explained, the increase in military tax will lead to a "chain reaction" when the expenses of all market participants will grow at each stage of project implementation, and therefore, the final cost of the product will inevitably increase.

"Firstly, the increase will affect suppliers working under the simplified tax system. As a result, their expenses will increase, which in turn will lead to an increase in the cost of goods and services supplied to developers. Secondly, the shortage of qualified personnel will force employees to demand compensation for the increased tax, which creates an additional burden on business," the expert said.

Thus, Perfect Group is already planning a gradual increase in salaries for qualified workers – crane operators, plumbers, electricians and other professionals in order to avoid the worsening of the personnel shortage.

At the same time, the increase in military tax will have the greatest impact on middle and economy class real estate, says Oleksiy Koval, head of Perfect Group projects.

"We expect that the impact of the military tax factor will become noticeable already in the first half of 2025, especially in the middle and economy class segments. The increase in taxes will lead to an increase in the cost price, which in turn may lead to an increase in the price per square meter for the end consumer," he said.