Thumbs up for budget’s impact on commercial property
Increase in stamp duty unlikely to deter city investors, says Cushman & Wakefield
Minister for Finance Paschal Donohoe: trebled stamp duty for commercial property, but also reduced the holding period for capital gains tax exemption from seven to four years. Photograph: Dara Mac Dónaill
Cushman & Wakefield’s latest market update gives a generally upbeat assessment of Budget 2018’s impact on the commercial property sector. Minister for Finance Paschal Donohoe included two key measures with consequences for the market.
The first was to treble stamp duty to 6 per cent. The second was to cut the holding period for the capital gains tax exemption to four years from seven. This means that anyone who bought commercial property between 2011 and 2014, and held it for four years or more, will be exempt from capital gains tax when they sell. The period was originally seven years.
Of the two, the stamp duty increase generated the most heat. Cushman & Wakefield predicted on Monday that the increase is unlikely to deter investment in Dublin and Cork. However, the firm believes there is a greater probability that it will have an impact on values in areas outside those cities.
Cool the market
While its outlook is relatively positive, Cushman’s position is not a million miles from that of those who criticised the measure because it could cool the market outside Dublin, where recovery from the recession is much slower.
The firm’s chief economist, Marian Finnegan, believes the capital gains tax measure will boost supply. This may not be happening out of turn. Cushman & Wakefield’s update points out that off-market deals are a growing feature of the market here.
Of the €1.3 billion worth of commercial property that has changed hands in the Republic this year, deals worth a total of €227 million were off-market. The real estate consultancy blames a shortage of supply for the trend.
What has been happening is that investors are looking beyond what is on the market and going to owners directly in order to find suitable properties. This indicates that there is plenty of demand, so increased supply may be no bad thing.
Presumably the Government knows this also. It is hardly an accident that on the one hand, Donohoe increased the duty on commercial property transactions while on the other, he included a measure likely to boost supply, thus keeping the number of those same transactions high.