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A Commonsense Budget

BUDGET 2014 surprised me with a whole array of pro- growth and pro- business measures, many of which will provide a direct boost to the property and construction sectors.

The most significant of these in the short term, is the extension of the purchasing period to the end of 2014 within which one can buy an investment property and still qualify for CGT exemption.

Just a few weeks ago I called for this very extension and it is pure commonsense to introduce this now.

Record numbers of investment properties are being sold in Ireland, albeit at prices 50-60pc off the peak values.

Investors are convinced that the market is rebounding, foreign money is flooding in and the CGT break is a vital part of that.

One fear was that with so many properties being sold this year, a glut of properties would hit the market in 2020, when the holding period expired, but that concern is diluted now.

NAMA refused to confirm if they had lobbied government to extend the CGT break but I’ll bet the champagne corks were popping on Grand Canal Street when Minister Noonan broke the good news.

Whilst the investment market is very strong, that has largely been limited to Dublin, with some spill over to Cork, Limerick and Galway.

NAMA have quite rightly been selling the “low hanging fruit” but they will need every tax break going if they are to get through all the loans in the provinces.

One only has to look at the Allsop Space auction this week where 93 properties out of 107 lots sold under the hammer for a total of €11.2m. Robert Hoban of Allsop Space told me that half of this total was commercial investments.

Encouragingly for NAMA, 850 people defied the protestors to attend and most interest was in commercial investments – “regardless of location”. With investors running out of time to acquire a property this year, one has to admire Allsop Space’s timing of the auction, just hours before an extension was announced.

Prices achieved were above expectations and many properties sold for multiples of their reserve.

The increase in DIRT to 41pc will drive even more money out of bank deposits and into property and will further boost what will be a strong and rising market in 2014.

A significant announcement is that NAMA will commit €2bn (or more) to fund Irish development projects over the next two years.

This is particularly welcome as there is a real fear in the market that a recovery will ironically be slowed by a lack of funding from banks.

The priority has to be to identify the best office development sites in Dublin, particularly in docklands, as the IDA are already concerned that the lack of available buildings will prevent them from bringing in more overseas companies.

Overseas companies in fast moving sectors cannot wait around for buildings to be constructed and Ireland will be “off the market” unless construction recommences. NAMA will also make €2bn in “vendor capital” available to purchasers of commercial properties.

NAMA (the taxpayer) will also invest in the construction of 4,500 new houses and apartments in Dublin, again supplementing a private sector development process which needs to be rebuilt and lacks funding.

It’s relatively recently that it was realised that the 15,000 apartments left vacant after the crash are all now effectively occupied. Rents are rising fast and there is a shortage of family homes.

Most of the properties built should be family homes but it will be difficult to find suitable sites near public transport and without reinforcing the car driving commuter belt.

The Living City Initiative extension is welcome but these types of schemes (e.g. the living over the shop schemes) have tended not to take off. The incentives involved often aren’t enough to get large scale development going in rundown areas and complying with fire regulations in buildings built before 1915 is a big issue.

The Home Restoration Tax Incentive Scheme is a great idea and will see jobs created and housing stock improved. A range of other initiatives will also help to boost the property markets.

Gordon Hayden, a property tax expert with Smith and Williamson Chartered Accountants agreed that the Budget was positive overall but would like to have seen a temporary lower VAT rate to stimulate the property and construction sectors.

Governments usually react too slowly to developments in the market but I am pleasantly surprised by the timeliness of this comprehensive range of measures.

Well done Minister!

PAUL MCNEIVE – 17 OCTOBER 2013 Irish Independent

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