Change Was Demanded by International Creditors, But Some Fear It Will Dent Already Hurting Property Prices

ATHENS—Greece's parliament Saturday passed a controversial new property tax and a law renewing a ban on home foreclosures for one more year in 2014, but the government lost a deputy in the process.

The bills were supported by the two-party coalition of the conservative New Democracy and the socialist, or Pasok, parties.

But lawmaker Byron Polydoras voted against the property tax, prompting New Democracy leader and Prime Minister Antonis Samaras to expel him from the party.

This reduces the already slim majority of the coalition government to 153 in the country's 300-seat parliament.

The new property levy, which has been years in the making, aims to boost Greece's budget revenues by rolling several taxes into one, but is also seen as harming the economy's expected rebound next year, driving dented property prices even lower.

The law imposes a tax on residential housing, commercial properties, vacant property lots, farms and sports fields and aims to raise some €2.6 billion ($3.55 billion) per year. At the same time, it slashes property transfer taxes by more than 50% and offers discounts to those who prove they cannot afford to pay it.

In September 2011, after facing a budget shortfall just months after receiving its first bailout from international creditors, Greece imposed a real-estate tax that it placed on electricity bills and is collected by the country's power company.

Known as the haratsi, the tax has become one of the most unpopular measures Greece has undertaken in its bid to improve its fiscal health. Greece is now replacing this tax with a new one, which effectively shifts the tax burden onto the assets of taxpayers rather than just assessing the income of those owning the property.

Property prices have fallen by an average of 32% since the country's crisis broke out four years ago, according to the Greek central bank. They are tipped to come under further pressure next year despite the economy's expected return to growth. The Greek government is concerned that a wave of foreclosures would weigh on the already weakened property market of the country, as mortgage defaults alone are now running at a staggering 24%—about €17.4 billion in total.

The law has been given the nod by the troika of international inspectors—the European Union, the European Central Bank and the International Monetary Fund—who are demanding that Greece move ahead with structural reforms to keep funding lines open.

But, the fresh ban on some foreclosures in 2014 was voted with the tacit consent of the country's international inspectors.

"We are bringing a bill to parliament without having reached a full agreement with the troika but also without a stated objection from their part," Development Minister Kostis Hatzidakis told reporters this week, while presenting the bill.

The new legislation extends a freeze on home foreclosures for one more year, but only for primary properties valued at up to €200,000 and households with an annual net income of under €35,000. The total value of the real estate and liquid assets cannot exceed €270,000, while bank deposits, shares or bonds cannot exceed €15,000.

A blanket protection on primary household properties, put into effect since the beginning of the country's financial crisis in 2009, will end by Dec. 31.

According to the Development Ministry, 90% of Greek homeowners are protected under the terms of the new bill.