1. 08/04/2019
Two-level Modelling of Real Estate Taxation – The Case of Czech Republic
Jaroslav Gall
Czech Technical University in Prague, Czech Republic
Department of Mapping and Cartography
Dr. Erik Stubkjær
Aalborg University, Denmark
Department of Planning and Development
Two-level Modelling of Real Estate Taxation
– The Case of The Czech Republic
UDMS, , Aalborg, Denmark

2. Overview Introduction Objectives of investigation Methodology:
context (taxation, land value maps, market-based value)
Objectives of investigation
Methodology:
modelling of processes, actors, systems and databases
Analysis – Investigation
I) market-value-based system,
II) land value maps (LVM),
III) political process
Outcomes:
the diagrams of models
Conclusion
Two-level Modelling of Real Estate Taxation
– The Case of The Czech Republic

3. Introduction (1/2)- context
Land tax experts recommend us regarding the land taxation system:
„The market approach:
is more effective and fairness
helps to discourage under-utilisation and speculations with land“
UNECE 2004, WPLA workshop in Lithuania:
normative values for taxation are not sustainable
market-value-based taxation + mass valuation
establish the taxable values
Two-level Modelling of Real Estate Taxation
– The Case of The Czech Republic

4. Introduction (2/2) – current tax
current property tax in the Czech Republic
= Land property tax + Structure (Building) tax
= income for municipalities, based on normative value/m2, doesn't relate to market values
(index of consumer prices between 1993 –2002 = 2,14; but tax rate is basically without changes)
levying is ineffective and expensive
low tax -> more under-utilised land parcels
lower social equity objectives
but current real property tax is also:
univocal, rather simply (taxpayer can count his tax himself), there is no space for corruption behaviour (determine the land value)
Possibilities??
cancel real property tax ???
market-based-value approach ???
Two-level Modelling of Real Estate Taxation
– The Case of The Czech Republic

5. Research Questions
Where are the barriers for taxation based on market value? (in both levels - the technical and political processes)
Do we have sources of land value data? Are these sources available? Are they used?
How can we apply the value maps for real property taxation – based on market value?
Two-level Modelling of Real Estate Taxation
– The Case of The Czech Republic

6. Objectives of Investigation
IDEA:
prepare such set of models which will bring understanding and strong arguments for introduce in land taxation the „market principle“ in the Czech Republic
consider of land value maps as an important component of the taxation processes
ACTIVITY/ METHODOLOGY:
analysis of the Czech real estate tax system
identify present practise, barriers as well as identify the possible approaches and space for improvement
by addressing of two levels
(technical and political) – propose the wider application of market-based values
Two-level Modelling of Real Estate Taxation
– The Case of The Czech Republic

7. Methodology TWO-LEVEL hypothesis Modelling
modelling the change process by providing a comprehensive view of point
Technical level
Political level (~99%)
Modelling
Methodology developed by project COST, action G9: Modelling of Real Property Transaction
Model: a descriptive and/or specification of a selected part of reality, representing a simplified mapping the conceived and interpreted notion
Models help to shape and understand both the problem and its solution domain
Two-level Modelling of Real Estate Taxation
– The Case of The Czech Republic

8. I) Market-value-based System and Taxation
Two-level Modelling of Real Estate Taxation
– The Case of The Czech Republic

9. Who wants the market-value based system ?
Politicians: „Hot potato“
– explain to people the relevance of an alternative tax system
Citizens:
They of course don´t want to have a potentially higher tax and get worries for their property (not every property can generate a profit)
Experts (urban planners, appraisers, etc.):
The change is a logical step, which leads to:
stronger relation between munic. and taxpayer,
more effective usage of land,
generally to the development of the real estate market
The change is not simple:
Characteristics like efficiency (1), fairness (2) and simplicity (3) do not always go in the same direction. If 1 and 2 increase, 3 decrease.
Two-level Modelling of Real Estate Taxation
– The Case of The Czech Republic

10. Normative vs. Market value (2/2)
Market value approach
Normative value method
based on:
the market value of property (from realised prices)
fixed value, depends on the type of area
only rural area is based on the value)
advantage:
higher tax fairness
motivate to more effective use of land
simply determination
disadvantage:
more expensive tax administration,
determination of value by mass valuation
low tax revenue
low fairness (doesn't reflect the local conditions)
Two-level Modelling of Real Estate Taxation
– The Case of The Czech Republic

11. Normative vs. Market value (1/2)
Comparing of the realized prices (market price) and normative values:
market price
normative value
Divergence of value
Number of cases
< 10 %
24 % %
46 %
>100 %
22 %
>200 %
8 %
100%
100%
Source: 894 market sales, 2002
Two-level Modelling of Real Estate Taxation
– The Case of The Czech Republic

12. Barriers for market-value-based taxation
imperfect real estate market after the Velvet revolution in 1989 (deformation by rent control, lack of sales, etc.)
higher property tax? – rather unpopular, not every real property can bring an income
responsibility of municipalities for the tax rate in according to local conditions – to explain and defend their decision to inhabitants
municipalities usually doesn't accept the value map (LVM) as the background for property taxation (LVM are expensive and demanding)
Two-level Modelling of Real Estate Taxation
– The Case of The Czech Republic

13. Bodies related to taxation and value of real property
Two-level Modelling of Real Estate Taxation
– The Case of The Czech Republic

14. II) Land Value Maps (LVM) and Taxation
Two-level Modelling of Real Estate Taxation
– The Case of The Czech Republic

15. Land value map (1/2)
08/04/2019
Defined by law: „graphic representation of building lands (parcels) with marked prices (CZK/m2) within the municipality territory, map with scale of 1:5000 or more detailed“
Why is VM important?
convenient way of presenting information about land value
useful in many fields (taxation, valuation, investment, land decision-making, mortgaging, purchasing, …)
improve the real estate market transparency
Data source for VM: realised sales only -> not sufficient source for determine the current value -> we need a knowledge of locality and other economic indicators + mass valuation
Two-level Modelling of Real Estate Taxation
– The Case of The Czech Republic
UDMS, , Aalborg, Denmark

16. Land Value Map (2/2) Usage of LVM:
08/04/2019
Usage of LVM:
currently 19 municipalities (1% of all municip., 24% of the population)
Why VM aren't used more?
made from realised sales – only by comparative method
BUT, if there is not enough of sales (cannot be used) - > doesn't cover all territory of municipality
data of realised prices are collected in database by Tax offices –municipalities doesn't have access to this database
municipalities aren't sufficiently motivated
Two-level Modelling of Real Estate Taxation
– The Case of The Czech Republic
UDMS, , Aalborg, Denmark

17. Real Estate Taxation municipalities have a key function
they know their locality very well
stores already related data (spatial planning)
have a free access to cadastral system data
(real property and owner information)
some institutions (state) and organisation (private) have a land value databases
=> need of:
negotiation with state authorities and private associations and companies relative to data collecting and connecting of existing databases and registers as well
use a mass valuation (CAMA system)
Two-level Modelling of Real Estate Taxation
– The Case of The Czech Republic

18. Land value map for taxation?
Requirements for land value maps:
VM should be prepared according a set of generally agreed methods
VM should cover all territory of the country
Existing sources on land price should be available
VM should be related to the urban plan
Availability of VM for taxpayers and tax offices:
paper version – on municipality
electronic version – on the Internet
Two-level Modelling of Real Estate Taxation
– The Case of The Czech Republic

19. Real estate taxation (1/3)- now
Two-level Modelling of Real Estate Taxation
– The Case of The Czech Republic

20. Real estate taxation (2/3)- with value map
Two-level Modelling of Real Estate Taxation
– The Case of The Czech Republic

21. VM for real estate taxation (3/3)- collection data
Two-level Modelling of Real Estate Taxation
– The Case of The Czech Republic

22. III) Political Process
Two-level Modelling of Real Estate Taxation
– The Case of The Czech Republic

23. Political process
basically everybody can propose new legislation (group of parliamentarians, senators, institutions, an association or e.g. the Union of Towns and Municipalities)
the Treasury dep. of the Ministry of Finance is in charge of taxation and preparation of new act
Two-level Modelling of Real Estate Taxation
– The Case of The Czech Republic

24. Political interests in market-value-based taxation
: A draft emphasises that the value of property and tax rate is determined by the municipalities (1999 blocked by government)
2000: A revised draft, where the real estate tax is based on common (~market) value of property, rate determined by municipalities (blocked by parliament)
2003: A draft proposed to cross to value approach only for land property tax
(blocked in the internal ministry process)
2006: A new draft is in preparation
(propose to use the mass valuation)
Two-level Modelling of Real Estate Taxation
– The Case of The Czech Republic

25. Political process – standard (1/2)
Two-level Modelling of Real Estate Taxation
– The Case of The Czech Republic

26. Political process (2/2) – through UTM
Two-level Modelling of Real Estate Taxation
– The Case of The Czech Republic

27. Political process – conclusion (1/2)
08/04/2019
: An afford to market-value-based taxation – without resulting in a new act
found difficulties?
communicating the taxation technicalities to the consistency
Propose:
more flexible approach (in what?),
reducing the demand on uniformity to the minimum ?????
provision of data on property attributes and on sale prices
provided municipalities are assisted (UTM, private comp., and/or more experienced municipalities
Is reasonable to assumead the growing number of municipalities. 50 – 70% of municip. have a LVM
draft an act
To what extent does privacy concerns objects to the dissemination of more or less aggregated sales data?
this information would likely make it an accomplishable (but not trivial) task to prepare LVM in municipalities, who are willing and able to prioritise that task
Two-level Modelling of Real Estate Taxation
– The Case of The Czech Republic
UDMS, , Aalborg, Denmark

28. Political process – conclusion (2/2)
to lifting the restriction on use of data, there is a need to establish technical connection between existing registers and systems, which contains the price information (attempt in Pilsner)
UTM covers the task of facilitating of information exchange among municip. => this exchange address the political as well the technical level => gained experience can than be reaped to fuel the standard political process
=> task of switching from normative to a market based taxation approach
Two-level Modelling of Real Estate Taxation
– The Case of The Czech Republic

29. Outcomes from Investigation
Two-level Modelling of Real Estate Taxation
– The Case of The Czech Republic

30. Outcomes 1 – Land Value Maps
Municipalities:
LVM provides a potential for improving:
real estate taxation,
urban planning and land management
Keepers of information on real estate
(Ministry of Finance, Cadastre Office, Statistical Office)
An analysis raises the question: „On whether and on what conditions the authority over data can be shared in wider circles?“
Banks, insurance service:
LVM would assist the industry to comply with:
demands of rational risk management
support the market in credits and mortgages
Two-level Modelling of Real Estate Taxation
– The Case of The Czech Republic

31. Outcomes 2 - Two-level Analysis
Hypothesis: to enhance the change process by providing for a more comprehensive view of options
Outcome: proposal to shift the attention
FROM providing a legal base for a countrywide, uniform taxation scheme
TO the (still complex) issue of allowing for wider access to data on sales prices and immovable properties attributes.
Wider access to these data will support the broad adoption of the land value map and thereby accelerate the implementation of a market economy in real estate
Two-level Modelling of Real Estate Taxation
– The Case of The Czech Republic

32. Thank you for attention!!
Questions?
Jaroslav Gall,
Czech Technical University in Prague, Czech Republic
Department of Mapping and Cartography
Dr. Erik Stubkjær
Aalborg University, Denmark
Department of Planning and Development
Two-level Modelling of Real Estate Taxation
– The Case of The Czech Republic