PROPERTY TAX: The Government's decision to increase the rates of stamp duty on commercial property sales will drive funds abroad, according to several leading estate agents.
It will also put commercial property at a disadvantage to other asset classes such as shares and gilts, says Mr Ian French of CB Hamilton Osborne King.
The changes, which came as a complete surprise to the industry, will see a new stamp duty structure for all property sales and leases executed from today. Threshold limits for all of the old rates are being increased and additional rates of 7 and 9 per cent are being introduced, depending on the value of the property.
The 9 per stamp duty, replacing the old rate of 6 per cent, will apply to all transactions valued at more than €150,000. The 9 per cent rate compares with 4 per cent in the UK, 4.8 per cent in France and 6 per cent in the Netherlands. It will be the second highest level of stamp duty in the EU after Belgium and is expected to yield €158 million in a full year.
Even before it comes into effect, Irish investors are already spending more on commercial property investments in the UK than in Ireland. During the past year, Irish investors are estimated to have bought about €1 billion worth of properties in the UK, compared to about €550 million at home. Irish investments have been in particularly short supply, even though overall returns have fallen sharply to under 3 per cent.
Mr French said last night he was convinced the new stamp duty would force investors out of the State in the same way residential investors moved to the Continent when mortgage interest relief was abolished.
The measure would also have the immediate effect of reducing the value of property in the various pension funds by 3 per cent, a further blow to pensioners who had already taken a hit on the stock markets. He said that, rather than lead to a further increase in the tax take from the commercial property market, he believed the changes would lead to a fall-off in revenue to the State because of the likelihood of fewer transactions.
Mr Pat Cullen of Deloitte & Touche said that with stamp duty thresholds now higher and VAT rates up by 1 per cent to 13.5 per cent, he believed investors would desert the Irish property market in favour of investing overseas.
The Institute of Chartered Surveyors also contended that the increase of up to 50 per cent in some stamp duties would "result in the outflow of investors' funds to other markets".
