Archive for December 8th, 2010

Well it seems like Tom Parlon, the Director General of the Construction Industry Federation (CIF) got his way on stamp duty in Budget 2011 as he expressed himself pleased with the replacement of current residential stamp duty arrangements which see rates of 0-9% levied on residential transactions replaced with a flat rate 1% transaction duty. I wasn’t so convinced as First Time Buyers (FTBs) who have hitherto been exempt from the tax will now need pay the 1% tax. According to the latest mortgage statistics for 2010 released by the Irish Banking Federation which represents banks controlling more than 95% of the Irish mortgage market, FTBs comprised 58% by volume and 54% by value of mortgages issued in the first nine months of 2010. The latest quarter shows that the average FTB mortgage is €189,000 – at a Loan to Value rate of 75%, that would equate to an average FTB purchase price of €252,000. So yesterday’s change to the stamp duty rules has added approximately €2,500 to an average FTB mortgage-backed house purchase. I would have said that this would tend to reduce demand by FTBs which is the major mortgage-backed purchase cohort. Where was the sense in that?

Also previously exempt were new homes with internal areas of less than 125 metres squared (1,346 squared feet). It is unclear how many of the 30,000-odd new homes that the partial Ghost Estate review in October 2010 examined are under 125 m2 but they too will now attract a 1% transaction tax. How will that help CIF members?

Stamp duty on residential transactions contributed €159m to State coffers from 12,000 transactions in 2009 and that figure declined further in 2010. At the peak in 2006 €1.3bn was contributed from 53,000 transactions.

Commercial transactions which contributed €188m to State coffers in 2009 were unaffected by yesterday’s change to stamp duty. However there is to be reform of various tax reliefs previously available to investors in commercial and other schemes that will see these reliefs terminated from 2014 onwards with a phasing out beforehand.

And of course CIF members will continue to suffer from the savage cuts to the capital programme.

It seemed to me that this might have been an ideal time to introduce a scheme similar to the Real Estate Investment Trust scheme in the UK. Although property prices might have some way to go, it seems that there is a growing consensus that there is value to be found in some market segments. The phenomenon of foreign funds, asset management companies and vulture funds congregating in the State in the past 12 months has been akin to the stampede for settlements in the Old West. Many participants have thus far been disappointed by the product on offer and in particular at perceived delays in NAMA bringing product to market, directly and by proxy. However all signs point to an opening of the sluices in 2011 and it is likely that there will be value to be found here. It is a shame that the government failed to rubberstamp a tax-efficient means for ordinary citizens to partake in any recovery in the sector. That said, Michael Noonan, the FG Finance Spokesperson has said that there will be a new budget should FG control a new administration, so perhaps there is time for some innovation yet.

UPDATE: 5th April, 2011. Because it comes up so often, here is a table from Citizens Information which shows the old and new arrangements.

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