Marian Finnegan, Chief Economist, Sherry FitzGerald Group (incorporating Cushman & Wakefield) Tuesday, October 10, 2017
Sherry FitzGerald and Cushman & Wakefield cautiously welcomed some of the measures introduced today in Budget 2018. According to Marian Finnegan, Chief Economist, Sherry FitzGerald Group; “Budget 2018 was relatively positive from a property perspective, however disappointedly, it failed to address key issues relating to the residential rental market.”
One of the most significant announcements in today’s budget, with regard to property, was the increase in commercial stamp duty rates from 2% to 6%. This measure is an attempt to broaden the tax base, however, it is unlikely to raise as significant a quantum of funds as some estimates have suggested.
Last year, research by Cushman & Wakefield found that approximately €6.2 billion was invested in commercial property nationwide, of which €4.2 billion was in direct commercial property investment. Current forecasts indicate that direct property investment will be less than €2 billion this year. Holding all else constant, this would reduce the capital flow to just under €4 billion, which will make it challenging to increase the stamp duty receipt by even a fraction of what is proposed.
Commenting Ms Finnegan said; “The proposed increase in stamp duty for commercial property is unlikely to yield the anticipated upturn in revenue, given contracting market conditions. That said, the rebate of stamp duty for residential development land is to be welcomed, as the higher rate would have significantly impeded the recovery in the residential property market.”
On a positive note, the announcement by Minister Donohoe of the Government’s intention to increase the capital expenditure on social housing is to be welcomed. Furthermore, the proposed increase in the Local Infrastructure Housing Activation Fund (LIHAF) of €75 million, together with the proposed €750 million allocated for commercial funding of residential development, are both encouraging initiatives. The reduction in the retention period, from seven to four years, in order to benefit from the 2011 Capital Gains Tax initiative is also a progressive policy change. Moreover, the Minister has announced an effective increase in the vacant site levy to 10% after 2019, on all lands on the register.
Commenting on these measures, Ms Finnegan said; “While, these policy changes are laudable in their intent, they will only be successful in increasing supply, if we see a notable improvement in our planning system and if we achieve a functioning development land market. Furthermore, it is particularly disappointing that the Minister chose not to address the significant supply side crisis in the residential lettings market. The latest data available suggests that less than 1% of the stock of rented accommodation is currently available to rent on the open market across the main regional centres. This is a real indicator of a market in crisis and one that would have warranted significant intervention. By failing to address the penalising tax rate for private investors, the Minister has missed a vital opportunity to provide a more stable rental market in Ireland.”
In conclusion, there are some positive initiatives announced in today’s Budget, but the Minister has failed to address what is probably the greatest supply side crisis in the property market, the diminishing stock of rental property.
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