Stamp duty on second-hand homes: Purchasers should be cautious in how they approach negotiations, writes Orna Mulcahy.
First-time buyers in the process of buying a home were unsure yesterday whether or not the new stamp duty threshold would apply to them.
More than half the questions put to ireland.com's Budget 2005 website related to stamp duty, and most of those were from people in the throes of a house purchase.
Wednesday's Budget raised the threshold for first-time buyers of second-hand homes from €190,500 to €317,500, effectively pulling many potential buyers out of the stamp duty net altogether. This puts up to €11,368 into their pockets, based on the average second-hand house price, which stands at €303,158.
Typically, buyers who had signed contracts, paid deposits and were about to close on their sale wanted to know if they would benefit from the new stamp duty rules.
The answer is that a contract comes into effect when it is signed by both parties, and so contracts signed before December 2nd would be subject to stamp duty at the old rates. However, people were urged to check with their solicitors for final confirmation of this.
Owners of apartments who are planning to trade up to second-hand houses wondered if they could be classed as first-time buyers for stamp duty purposes. The answer is a categoric "no".
Quite a few queries were from people who had completed a purchase in recent months, who wondered, wistfully, if there was any hope of claiming back the stamp duty retrospectively. Again, the answer is "no".
While first-time buyers were confused, estate agents are clearly pleased with the measure, which gives first-time buyers an immediate boost in the market, though the question is whether this bonus will simply end up in vendors' pockets as prices rise to meet the new threshold.
"Of course, people who had budgeted for stamp duty and who were close to buying will almost certainly increase their offer, if that's what it takes to secure a home," said Simon Ensor, chairman of Sherry FitzGerald, the Republic's largest estate agency chain. He anticipates that prices at the entry level to the market could rise in the coming weeks as buyers on the point of purchase clinch deals with the money previously earmarked for stamp duty.
"Buyers need to be a bit prudent in how they approach negotiations with this money in hand," said Alan Cooke, chief executive of the Irish Auctioneers & Valuers' Institute (IAVI). "The big danger will be that the extra money will find its way over to the seller's side, and that will happen if buyers throw every last euro onto the table in frenzied negotiations. When the first-time buyers' grant was introduced, it eventually fuelled prices, as builders factored it into their house prices."
The immediate impact of the change in stamp duty will be to provide first-time buyers with a wider range of properties to choose from, according to estate agents Hooke & MacDonald, who specialise in the new homes market. "At the entry level end of the market, second-hand properties will now be able to compete on price alongside new homes," said director Ken MacDonald.
All new homes with a floor area of less than 125 sq m (1,345 sq ft) continue to be exempt from stamp duty. In the current market, over half of all new homes built are bought by first-time buyers, and house-builders will be keen to hold on to their best customers in the face of competition from the second-hand market.
Already, some developers with large tracts of housing due to come on stream in the new year are considering releasing houses on a phased basis to avoid oversupply.
However, with a limited supply of second-hand homes at entry level prices - particularly in the Dublin area, where the average price of a second-hand house is €400,000 - first-time buyers will almost certainly still chase the new homes market, said Ross McParland, director of Sherry FitzGerald New Homes.
"The supply of second-hand homes will never match that of new homes," he said. "There are other reasons, too, why first-time buyers prefer new homes. Many of them prefer to start with a blank canvas - a new house in a new neighbourhood. Also, developers have upped their game to make new homes more appealing, and many starter homes now come with extras like kitchen appliances as well as a 10-year structural guarantee."