On 12 November, Parliament approved the bill and, as a result, implementation is one step closer. This measure, which seems to have been introduced in a hurry, does not appear to be well thought through and is causing unprecedented unrest in the real estate market, not least for valuers.

The emergence of the Coronavirus at the end of 2019 and the resulting global pandemic has created great uncertainty around the world. This has led to the inclusion of a 'material valuation uncertainty' clause (in accordance with VGPA 10 and VPS 3 of the RICS Redbook) in valuation reports in a considerable number of cases due to a lack of market evidence. “Markets can be disrupted by relatively unique factors. Such disruption can arise due to unforeseen financial, macro-economic, legal, political or even natural events.” (RICS, VGPA 10). Corona - the cause of this material appraisal uncertainty - is a natural phenomenon and is beyond any form of human influence, but the introduction of the transfer tax as a political event - the cause of the current appraisal uncertainty - is the result of ill-considered human actions caused by the Dutch Government. In my opinion it would be a step too far to reintroduce the uncertainty clause for the transfer tax, but in this blog I will set out that it causes an increased valuation uncertainty.

On 15 September 2020, the cabinet submitted the 2021 ‘Tax Plan-package’ to Parliament. Part of this package is the 'Differentiation of Transfer Tax Act' bill, which proposes to exempt first time buyers in the housing market (young adults up to 35 years) from transfer tax when purchasing their own home and to increase the general rate of transfer tax. Based on this proposal, three rates may apply from 2021: 0 per cent for 'first time buyers', 2 per cent for other buyers who will use the home as their primary residence, and 8 per cent for investors. On 12 November, the bill (together with various amendments) was put to a vote in Parliament, who approved the bill to change the transfer tax as of 1 January 2021. One of the adopted amendments concerns the introduction of a €400,000 limit for a one-off exemption from the transfer tax (as of the 1^st of April 2021), to be indexed annually.

Since the measure was announced on Budget Day, we, as appraisers, are regularly called by clients who (rightly) have questions about the consequences of the proposed measure for the market value ​​of their real estate at the end of the financial year: 31 December 2020. They are asking us about the effects of a measure that was only introduced on Budget Day in September and, until 12 November, wasn’t even fully worked out and to this day has not even been fully adopted.

The change in transfer tax may affect valuations at the end of the financial year for the calculation of the final value. As the bill has yet to be dealt with in the Senate there is no certainty as to whether the measure will actually be introduced in law. It’s therefore not logical to preemptively implement the adjustment of the transfer tax in valuation models (e.g. the rate for costs-to-buyer will go to 9 per cent from year 2021). The question, however, is whether buyers already need to take the increased transfer tax into account when determining final values in their investment models?

In any case, it seems that investors are anticipating this change. We have received market indications that bids are being adjusted downwards. Sellers have their backs to the wall, because the idea prevails that the property will be worth less in 2021 and are therefore inclined to sell. Growing supply puts further downward pressure on prices. However, we are still seeing unprecedented demand for residential investment, not least due to the introduction of this measure. It resembles a "gold rush", which could actually increase prices. These are opposing forces and it is up to the valuer to determine who wins this battle: not an easy task.

Let me stress that valuations are based on transactions. Given the recent announcement of the plans, transactions have since been scarce. In general, there is some time lag before transactions are published, and I anticipate that the lion's share of transactions will not be published until 2021. At that point, the references are too late for the current valuations as at Q4 2020. Nor will they be useful for the valuations of Q1 2021, because the situation will be different as a result of the higher transfer tax. A valuation made on 31 December 2020 is in that case already outdated on 1 January 2021, and less reliable. In my opinion this is a highly undesirable situation.

Is there hope with regard to the number of transactions in 2021 and does this put an end to the valuation uncertainty? That certainly does not seem to be the case, as we expect that the number of transactions will - at least temporarily - come to a standstill next year as a result of the measure. Regular catch-ups with colleagues from the investment department, who are closely connected to the market, is certainly the norm at Savills, even more so in these times. Certainly in times of uncertainty, it increasingly comes down to the experience of the valuer and close contact with brokers. One advantage for us: the added value of a professional and experienced appraiser seems greater than ever.