Does the application of apartment price references conflict with equality?

The government has approved new average market prices for housing. Compared to 2023, prices have increased in large cities and coastal areas, which are not classified as cities.

The government’s setting of apartment price benchmarks raises several important questions regarding the principles of equality before the law and non-interference in the market. To assess whether this policy conflicts with these principles, it must be analyzed from several perspectives:

1. Equality before the law

The setting of price benchmarks does not necessarily violate equality before the law, as long as these benchmarks are applied uniformly to all citizens and legal entities. If the government has established a transparent mechanism, based on objective criteria (such as urban development, supply and demand, or public investments in infrastructure), then there is no direct discrimination.

However, equality may be violated if:

The benchmarks are set arbitrarily or favor certain areas and groups.

The use of these references limits market access for individuals with fewer financial means.

2. Non-intervention in the market

In a market economy, prices are usually determined by the forces of supply and demand. Government intervention with price references can create:

– Restrictions on contractual freedom, if references are used to set binding limits.

– A message that the government is indirectly influencing market dynamics by distorting its signals.

In the government’s defense, this policy can be argued as a means to:

– Combat informality in the real estate market, as reference prices can help to declare real values.

– Create a guiding standard to avoid extreme speculation in certain areas.

3. Is it inconsistent?

This depends on the purpose and manner of implementation of the references:

Yes, if the references are used as binding limits for transactions, restricting market freedom.

No, if they serve simply as a guiding basis for fiscal purposes (e.g., for taxes).

Setting reference prices can be an acceptable policy within a regulated framework, as long as:

a. It respects the principle of equal treatment for all.

b. It does not directly restrict market mechanisms.

c. There is a high level of transparency in the methodology and purpose of their determination.

If these principles are not respected, then there is a risk that the policy will be considered as unnecessary and unfair intervention.

On these references, property tax is reassessed and the references replace the market value, which is largely informal and the government’s task is to combat informality.

Are there similar experiences in other countries?

Yes, there are similar experiences in other countries where governments have set reference prices for real estate to address informality and increase property tax revenues. These practices are usually used to help correctly declare the value of assets, replacing market prices that are often undocumented or manipulated.

Here are some examples:

1. Italy

Italy uses the “cadastral listing” (Catasto) system, where each property has a registered cadastral value, which serves as the basis for calculating property taxes and transactions.

The goal is to combat tax evasion in the real estate market.

The result?

This method has led to increased tax revenues, but has been criticized for its rigidity and for the fact that it often does not reflect the real market value.

2. Greece

Greece has implemented the “objective value” for properties, which is determined by the state and used for property taxes and various transactions.

The goal is to control informality and combat under-declaration to avoid taxes.

The result?

This system is effective in increasing transparency, however it has caused controversy in cases where reference prices are much higher than actual market values.

3. India

In India, state governments use a system of “guide price” (Circle Rates) to set a mandatory minimum for real estate transactions.

The goal is to prevent under-declaration to pay less tax and to address informality.

The result?

This practice has significantly reduced tax evasion, but some areas remain highly informal, making the system challenging to fully implement.

4. Germany

In Germany, property tax is based on the value assessed by the tax authorities, not necessarily on market value.

The goal is a fair and consistent system for collecting taxes.

The result?

This system has worked well in a regulated market, but revisions to values ​​occur infrequently and sometimes result in unregulated values.

Does such a system work?

Pros

1. Improves transparency and helps the government fight tax evasion.

2. Increases property tax revenues and formalizes the market.

3. Provides a unified basis for transactions and reduces the possibility of manipulation.

Cons

1. May create tension with citizens if references are too far from real market prices.

2. Risks being ineffective in highly informal markets, where underpricing continues.

3. Requires transparency and frequent updating to reflect market dynamics.

Conclusion

The use of reference prices is a globally recognized practice, but its success depends on implementation. Albania can learn from the experiences of countries such as Italy and Greece, ensuring that:

1. The system is fair and reliable.

2. References are based on real market analysis.

3. Citizens and businesses should be included in the consultation process to avoid social tensions.