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Published in Construction on 18/10/2018

Hike in Stamp Duty Likely for BTR Market

CNI Editor reports

The publication of the Finance Bill today will be closely watched by investors in Ireland’s fast-growing Private Rented Sector (PRS) market to see if Finance Minister Paschal Donohoe decides to increase the rate of stamp duty applied to the purchase of apartment blocks.

While the minister left the existing rate of 2pc applied to PRS transactions untouched on Budget day, the fear remains within the property industry and investment community, that he may decide to increase it to 6pc. Such a move would bring the PRS sector into line with the rest of the commercial property market which saw the introduction of the higher rate last year.

With the Government’s estimates for expenditure for next year forecasting an increase in overall stamp duty receipts of €164m, or just over 10pc from €1.574bn in 2018 to €1.736bn in 2019, managing director of WK Nowlan, Killian O’Higgins, believes the minister will need to raise the rate “somewhere” to achieve his target.

And although Mr O’Higgins says the finance minister could look to increase the State’s stamp duty take from stocks and shares, insurance and miscellaneous and the levy on certain financial institutions, Hooke & MacDonald’s latest quarterly report on the Dublin residential investment market would seem to support his view that the PRS sector remains the likeliest target.

According to it, the value of transactions in the capital’s private rented sector are currently on course to surpass €850m by the end of this year following three successive quarters of robust activity. And with over €5bn of investment capital still targeting investment in this area, the potential revenue to be garnered from raising stamp duty on PRS transactions may influence the minister’s thinking.

The increasing strength of PRS is further illustrated by its growing share of the Dublin residential market. Having accounted for just 6pc of the capital’s activity in 2016, the private rented sector’s share rose to 11pc in 2017, before rocketing to 29pc in the first nine months of 2018.

The most significant recent transactions in the PRS sector were the sales by Park Developments of 262 apartments at Fernbank, Churchtown to Irish Life at a reported €138m, The Grange, Stillorgan Road for €126m to Kennedy Wilson and the sale by Cairn Homes of 120 apartments at Six Hanover Quay for €101m to Carysfort Capital.

With less than 2,000 new apartments set to be built in Dublin this year, Hooke & MacDonald managing director, Ken MacDonald, describes PRS as being “vitally important in contributing to solving the shortage of supply in the rental market and achieving a moderation in rental price increases”.

Mr MacDonald’s view on the role PRS might play in addressing the housing crisis is echoed by Marie Hunt, executive director and head of research at CBRE. And while Paschal Donohoe’s decision on the rate of stamp duty to be applied to the sector will have been made by now, she offers some cautionary advice.

She says: “There is more than €5bn of investment capital targeting investment in this sector at present, with almost 80pc of this emanating from overseas investors. Increasing stamp duty at this juncture would have potentially diluted some of this investor appetite and impacted on supply pipelines. It would have had an immediate negative impact on values, which in turn could have led to even higher upward pressure on residential rents, which is clearly not what the market needs at this particular juncture”.

REF: Irish Independent