Changes in Legislation: Income Tax and the Real Estate Market Activity

From January 1, 2025, the Law on Income Tax Refund will partially cease to operate in the city of Yerevan. It will remain applicable only to properties purchased from developers who received building permits prior to January 1, 2022.

From January 1, 2027, the income tax refund law will no longer apply to real estate located, being built, or planned for construction in the administrative territories of Aragatsotn, Ararat, Armavir, and Kotayk regions, except for properties in border settlements included in the government-approved list.

From January 1, 2029, the income tax refund law will cease to apply to real estate located, being built, or planned for construction in the administrative territories of all other regions, with the exception of border settlements specified in the government-approved list.

According to Government Decision N 1626-N, dated October 17, 2024, amending Government Decision N 1321, dated October 5, 2017, the maximum refund amount for contracts signed after January 1, 2025, will be reduced from 1,500,000 drams to 750,000 drams per quarter.

Point 8 of the Law of the Republic of Armenia on Amendments to the Law “On Income Tax” (adopted on November 17, 2021) states that if an individual purchases an apartment from a developer and subsequently decides to sell it (even if it is still under construction), the new buyer will no longer qualify for the income tax refund benefit.

The implementation of these changes will occur in stages:

– Yerevan in 2025,

– Several regions in 2027,

– The entire territory of Armenia by 2029.

For example, if in March 2025 you purchase an apartment in a building under construction or completed in Arabkir from a developer who obtained a construction permit before January 1, 2022, you will still be eligible for the income tax refund. However, the maximum refund amount will change.

Previously, the maximum refund amount was 500,000 drams per month, but starting January 1, 2025, this will be reduced to 250,000 drams per month. This adjustment aligns proportionally with the interest on purchasing an apartment worth 25,500,000 drams (for 15 years, with a 13% interest rate and a 10% down payment). According to the law, the maximum eligible property value for the refund remains at 55,000,000 drams.

1. Increased construction activity in the regions:

The amendments are expected to stimulate regional construction, particularly for the following types of properties:

*1.1. Smaller, economy-class apartments: These will be designed to align with the reduced maximum refund of 250,000 drams, making them more accessible to buyers seeking to take advantage of the tax benefits.

*1.2. Apartments with tailored designs: Developers will focus on creating properties with detailed, buyer-specific solutions to meet the preferences of target demographics. Projects lacking a clear vision or tailored approach may face challenges in securing sales.

2. Increased supply in the secondary market leading to heightened competition

The anticipated influx of properties, particularly “raw” apartments, into the secondary market is expected to result in intense competition. This surge in supply may lead to:

*2.1. Shortages of designers and builders, along with rising service costs due to heightened demand for renovations and upgrades.

*2.2. A competitive edge for properties featuring professional renovations and thoughtful design, as these will stand out in a crowded market.

Historical parallels can be drawn from the U.S. (2008) and Spain (2008–2014) real estate crises. During these periods, developers were able to partially revive demand and address their financial obligations to banks, while investors seized the opportunity to purchase high-quality properties at reduced prices.

3. Potential decline in mortgage loan demand

A decrease in mortgage loan demand could have significant repercussions:

*3.1. Banks may introduce more favorable mortgage terms to attract borrowers and sustain their lending activities.

*3.2. Developers might explore alternative products to bolster demand.

One potential solution is the introduction of deferred payment plans (often structured as “Purchase and Sale Agreements”), allowing clients to acquire property without immediate stable payment capability. Under such arrangements, buyers commit to begin payments after a predetermined grace period, enabling greater flexibility for both parties.

4. Real estate activity in Armenia

Large-scale construction projects may emerge in certain regions, where developers take on not only residential construction but also the development of supporting infrastructure. This integrated approach can drive down costs through economies of scale and high-volume efficiencies. 

To support continued growth in Yerevan’s construction sector, the government may implement additional initiatives. These efforts could lead to the modernization and renewal of Yerevan’s housing stock, ensuring the city remains competitive and accommodating to future demand.

The recent changes to the law are poised to significantly influence the real estate market activity. A thorough real estate market analysis of these amendments and their potential effects will enable stakeholders to better prepare for various outcomes. This proactive approach will help capitalize on emerging opportunities while effectively navigating potential challenges.