What is the general climate of real estate investment in your jurisdiction?
Ireland’s economy is the fastest growing in Europe for a fifth consecutive year, with an estimated growth of 7.5% in 2018. Ireland remains a highly sought after location for real estate investment with 2018 investment in commercial real estate reaching €3.6 billion (an increase of 43% on 2017).
The need for more housing has continued to dominate the headlines in 2019.
The student accommodation market in Ireland continues to perform strongly for investors seeking a long-term investment option given existing and future demand.
Many government initiatives are focused on the above. For example, in an effort to increase supply, a fast-track planning process for large-scale housing developments of 100 houses or more and student accommodation developments of 200 or more bed spaces was introduced.
This will create opportunities for developers, builders, funders and investors.
Who are the most common investors in real estate?
Recent years have seen an increased professionalisation and internationalisation of the Irish real estate market. Private equity funds continue to reduce their presence and are being replaced by more long-term holders of real estate assets such as real estate investment trusts and pension funds, both national and international. International investors accounted for more than 54% of 2018 investment turnover (increased from 47% in 2017).
Are there any restrictions on foreign investment in real estate?
Subject to satisfactory anti-money laundering documentation being provided and UN and EU sanctions lists, there is no restriction on foreign investment in real estate.
What structures are typically used to invest in real estate and what are the advantages and disadvantages of each (including tax implications)?
A number of structures can be used to invest in Irish real estate and the type of structure used depends on the investor base, objective of the investment and exit strategy of the investor (eg, whether the asset is held to generate rental income or to appreciate in value).
Irish companies can be used to develop real estate and a 12.5% tax rate should apply to the sale of fully developed land by an investment company.
Non-Irish resident companies are often used to invest and hold Irish real estate and are liable to income tax at a rate of 20% on rental profits, compared with a 25% for Irish resident companies.
Qualifying Irish real estate funds used for international investment in Irish property portfolios are tax exempt at the level of the fund but highly regulated and expensive to set up and run. Therefore, these are suitable only for large scale investment. The Irish Collective Asset Management Vehicle (ICAV), which is a form of fund, is frequently used for large portfolio investment. The ICAV is able to ‘check the box’ to elect to be a disregarded entity for US tax purposes, which is an advantage over other fund vehicles which cannot. Following changes introduced in the Finance Act 2016, these funds are now subject to withholding tax of 20% on distributions and redemptions.
The activity to be conducted, the size of the investment and the location of the shareholder will dictate the most appropriate structures.