Amendment to Asset Valuation Act to define market value

The Asset Valuation Act mainly regulates valuation methods to determine a tax base (whether for property tax, income tax, VAT or fees). Its purpose is to set general criteria and principles to help prevent tax evasion. The act is generally used to determine prices of assets for purposes other than sale (such as court-ordered settlement and distribution of the joint property of spouses, or decisions by financial institutions to grant mortgage loans). The price determined under the act is also used to assess economy of purchases and sales of property by the state.

Under the current wording of the Asset Valuation Act, the basis for valuation is mainly an asset’s common price, which is determined by comparing (negotiated) purchase prices of comparable things. The amendment widens the valuation options, introducing the market value as an alternative valuation method. According to the amendment, this method should mainly be used in situations where purchase prices of comparable things are not available to determine the common price, either because of the unique nature of the thing being valued, or because the thing has not yet been traded at the given time and place. Market value shall be the estimated amount for which a property should most probably exchange on the date of valuation between a willing buyer and a willing seller in a business transaction in a free market after proper marketing.

Another change will concern undeveloped construction plots of land where a separate legal regulation stipulates the maximum admissible built-on area. Under the current wording of the law, only the part of the land corresponding to the built-on area limit is to be considered a construction plot for valuation purposes. Under the proposed amendment, the whole plot of land would be considered a construction plot:  the explanatory report states that these plots of land should be valued as one functional unit, because prices of construction plots are also negotiated for the whole plot of land without differentiating as to their development possibilities.

Following the new Civil Code, the amendment also includes specifications as regards the right of superficies or easements: it proposes that for the purposes of determining the price of real property encumbered by an easement or another right in rem established by operation of law (such as protective or safety zones) these should be valued as real property’s defects. For this purpose, the term of a property owner’s loss is introduced, which shall be determined as the loss of the owner’s benefits from the assets resulting from them being encumbered by these rights.

The amendment will also affect the Consumer Credit Act. It gives providers of consumer credits for housing purposes a choice of valuation methods to apply to the collateral: they may choose between the usual price and the market value. The reason for this is that at times of rapid fluctuations in price levels, a usual price may not always correspond to actual market conditions, as it is calculated based on prices negotiated in the past. In the time of growing real estate prices, consumers are likely to welcome the change.