Property deals ‘may collapse’ as vulture funds targeted

Some property development land deals may sink as the Government’s promised clampdown on use of certain fund structures to cut tax bills prompt overseas funds to reassess the viability of projects, according to analysts at Goodbody Stockbrokers.

Minister for Finance Michael Noonan moved early last month on private equity investors' use of special-purpose vehicles, known as section 110 companies, to minimise their tax bills on property loans acquired in recent years. These investors are often referred to as vulture funds.

The Government will target the taxation of Irish real estate held in similar structures, known as Irish collective management vehicles (ICAVs) and qualifying investor alternative investment funds (QIAIFs), in the forthcoming Finance Bill.

The Department of Finance estimated on Tuesday that the measures would deliver €50 million of revenue next year for the exchequer.

Deals delayed

"The uncertainty surrounding the legislation that governs QIAIFs/ICAVs had delayed well in excess of €100 million worth of deals in the run-up to the Budget," said Goodbody analysts Colm Lauder and Eamonn Hughes in a note on Wednesday.

With the period of uncertainty extended to the publication of the Finance Bill later this month will further delay transactions in train, the analysts said.

“In a worst-case scenario we may see deals fall through, with assets, particularly development land, being put back on the market if investors lose patience or fear their sums no longer add up once tax is added on,” they said.

“A glut of properties on the market, with a reduced pool of purchasers, would mean a dampening of capital values, but could also present good opportunities with established structures and finance in place.”

Goodbody estimates that overseas investors were responsible for 71 per cent of property market trading so far this year in Ireland.