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.
NAMA Wine Lake 
http://www.kildarestreet.com/debates/?id=2010-12-07.223.0
Some highlights…. (’tis a pity our national radio/television service didn’t bring us this debate live)
Brian Lenihan Jnr (Minister, Department of Finance; Dublin West, Fianna Fail)
There is a limit to burden-sharing. As I said in this House last week, there is simply no way this country, whose banks are so dependent on international investors, can unilaterally renege on senior bondholders against the wishes of the our European partners and the European institutions. This course of action has never been an option during this crisis.
It is true the State has had to inject large amounts of capital into the banks. In return, the State will own the bulk of the banking system. The use of funds in the National Pensions Reserve Fund to recapitalise the viable banks is necessary to ensure that these institutions serve the needs of the economy.
The approach to fixing the banks agreed under the joint programme will not reverse any of the Government’s banking policies. In fact, the very opposite is true. The programme builds upon and intensifies the measures introduced to date. The most senior members of the international team negotiating the programme have endorsed our policies.
…
Brian Lenihan Jnr (Minister, Department of Finance; Dublin West, Fianna Fail)
The job of the Government on behalf of the State is to ensure that the common good is served. That requires saying “No” at least as often as saying “Yes”.
Lucinda Creighton (Dublin South East, Fine Gael) It is a pity Deputy Bertie Ahern did not know that.
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Michael Noonan (Limerick East, Fine Gael) The current budget deficit has shot up to 32% of GDP and the Government can no longer borrow. That is why it is out of the bond market because if it went to it, it could not borrow any longer. Ireland has become insolvent and that is why we have to be rescued by Europe and the IMF.
Paul GogartyPaul Gogarty (Dublin Mid West, Green Party) We are rescuing them. If the Deputy listened, he might learn something.
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Michael Noonan (Limerick East, Fine Gael) If it was not so serious, it would be funny. When one reads the letters, they sound like confessions beaten out of him, as if one were reading a thriller. It is as if they water-boarded the Minister in Merrion Street and made him sign the letters, or perhaps they were motivated by the mock humility of the gombeen culture to think that he would get the €85 million more easily if it was a handout.
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Pat Rabbitte (Dublin South West, Labour) Somebody get Deputy Gogarty a soother.
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Emmet Stagg (Kildare North, Labour) A Leas-Cheann Comhairle, will you ask the Taoiseach to have some manners and stop interrupting?
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Pearse Doherty (Donegal South West, Sinn Fein) Mary, you are on much more than that and you should keep your mouth closed for just a couple of seconds.
Mary Coughlan (Tánaiste; Minister, Department of Education and Science; Donegal South West, Fianna Fail) I am not known by my first name here.
…
Jesus wept.
The budget was disappointing, not just for the obvious reason, but because it was the most depressingly negative piece of bookkeeping that has ever emanated from Kildare Street. There was not one iota of positive or creative thinking in it.