On 11 October 2016 the Minister for Finance, Michael Noonan T.D, announced the Irish Government’s Budget for 2017. There were a number of measures introduced which are likely to impact the Irish property market. These measures were, in the main, intended to support the Government’s stated objective to alleviate the housing crisis through the Rebuilding Ireland Housing Action Plan published in July 2016.
First Time Buyer’s Incentive
Arising from Central Bank lending restrictions introduced in the aftermath of the financial crisis, first time buyers are now required to have a deposit of 10% of the property price up to €220,000 and 20% of the purchase price thereafter. Anecdotally, it seems that this has become a significant obstacle to those seeking to buy their first home which by implication stifles the levels of demand for new starter homes.
The Government has now introduced a tax rebate for first time buyers of 5% of the purchase price of a new home up to a maximum of €20,000. The rebate applies to tax paid by the first time buyer in the previous 4 years and is limited to situations where he/she is borrowing at least 80% of the purchase price. The rebate will only apply to the purchase of new homes but has been backdated to those who have signed contracts for the purchase of new properties since the announcement of Rebuilding Ireland in July 2016.
Advocates of the tax rebate scheme point out that first time buyers will receive significant financial assistance to enable them to purchase new homes, in circumstances where demand has been stifled because of the Central Bank restrictions and that in releasing this “pent up” demand into the market, reluctant developers should be incentivised to deliver more residential units at prices affordable to the average first time buyer. Detractors suggest that this stimulation of demand in a market which is short on supply will only serve to increase prices in the market. While this may well be the case, some advocates still point out that if this helps to increase supply albeit at slightly higher prices, the scheme will have achieved its principal objective.
The Irish Revenue Commissioners have issued limited guidance in relation to how the scheme will operate. One aspect which will need to be clarified is in relation to clawback of the relief where a first time buyer is proved not to have been entitled to the relief at a later date. The guidance currently states that both the “first time buyer” and the developer/contractor responsible for building the new home will be jointly and severally liable for any refund due to the Revenue Commissioners. It is difficult to understand how this will operate in practice as it would put a strong and probably unrealistic onus on the developer concerned to make detailed enquiries of the personal circumstances of first time buyers. No doubt this, and other aspects of the scheme, will become clearer in the coming weeks.
Additional Funding for Social Housing
Following the publication of Rebuilding Ireland, the Government used Budget 2017 to announce further increases in capital spending to assist in the delivery of more social housing. The Government plans to spend €1.2 billion next year as part of an overall spending programme of €5.35 billion on social housing initiatives. As has been seen to date, the delivery of such units has been a mixture of local authority development, purchases of existing units and partnerships/arrangements with private developers to construct new schemes. Further Government investment in this area is clearly very significant for the construction sector, irrespective of how the money is spent. Increased investment will inevitably offer opportunities for private developers who are in a position to deliver multiple units for sale to or in partnership with local authorities and housing associations.
Tax Treatment of QIAIFs, QIFs and ICAVs
In the run up to Budget 2017, the tax treatment of rental income and profits received by certain authorised investment vehicles from Irish assets became a controversial issue. Arising from concerns that some investors were using these vehicles to invest in Irish property and distressed loans while at the same time avoiding liability to Irish tax in relation to any profits or income derived from those assets, the Government has indicated that changes will be introduced in the forthcoming Finance Bill which will amend the tax regime applicable to these investment vehicles to ensure that the income and gains arising from these assets are taxed in Ireland. The Finance Bill is due to be published in late October 2016 and a number of transactions are currently on “hold” pending clarification of this issue.