Budget 2018: Rate for commercial property sales rises to 6%

Minister gives buyers of residential sites a route of escape from stamp duty rises

Minister for Finance Paschal Donohoe  announced a tripling of the stamp duty payable by purchasers in commercial property transactions. Photograph: Paul Faith/AFP/Getty Images

Minister for Finance Paschal Donohoe announced a tripling of the stamp duty payable by purchasers in commercial property transactions. Photograph: Paul Faith/AFP/Getty Images

 

Minister for Finance Paschal Donohoe has announced commercial stamp duty refunds to purchasers of residential sites, if they start building homes on the site within 30 months.

Mr Donohoe also announced a tripling of the stamp duty payable by purchasers in commercial property transactions, up from 2 per cent to 6 per cent.

However, he was warned by senior figures in the property and finance industries that the Government will struggle to reach the €376 million it claims the measure will raise.

The lower rate was introduced in 2011 to stimulate a then moribund market, but the Minister said in his speech that “the time is right” for change. The higher rate comes into force on October 11th.

The Government’s estimation that a 4 per cent rise would raise an extra €376 million, implies that the base of taxable transactions is about €9.4 billion.

However, PWC Ireland tax partner Peter Reilly said that the number of commercial property transactions is already slowing and with residential sites stripped out it might only be worth between €2 billion and €2.5 billion in 2017.

“You would struggle to see how a 4 percentage point rise on that could raise €376 million,” he said.

Savills also expressed scepticism over the Government’s figures, which it said were “based on evidence from an atypical period of intense commercial property trading during which distressed assets changed hands prolifically”.

John McCartney, head of research at Savills, said he believes the State will be “disappointed” by how much cash it is possible to raise from the measure.

“We’re already on a glide path to a more normal level of market transactions after the glut of distressed asset sales of previous years,” he said.

‘Overestimated’

“On this basis we believe the Government has overestimated the potential tax take from today’s commercial stamp duty increase.”

Marian Sheridan, chief economist of Sherry Fitzgerald, said she believes the measure would raise only a “fraction” of the Government’s target.

Meanwhile, as part of a suite of measures targeted at increasing the supply of land for homebuilding, Mr Donohoe also announced in his budget speech changes to the vacant sites levy, which penalises landowners for hoarding sites.

The levy was flagged in previous budgets and was due to come into force anyway this coming January.

However, the Minister announced that the levy, which had been set at three per cent annually, will now rise to seven per cent for the second and subsequent years that a site remains vacant, “if the developer continues to hoard”.

“The message to developers is clear: to have your levy lifted, you need to get on with developing,” said Mr Donohoe.

‘Penalised’

The Construction Industry Federation said the site levy “must be applied fairly and impartially so that genuine landowners/housebuilders experiencing viability issues are not unnecessarily penalised”.

It expressed concern over the commercial property stamp duty changes, which it said could “have a dampening effect on investment”.

Meanwhile, John Heffernan of EY said the rates in the new stamp duty regime are “not out of whack” with other European countries. He also said the rebate scheme for residential sites “needs to be simple” in its application.

Property consultancy CBRE strongly criticised the stamp duty changes, and said the Government is “out of touch with the commercial realities of development and viability” and damaging its reputation with international investors.

“To say that today’s budget is negative for the commercial real estate market is an understatement,” said Marie Hunt, head of research at CBRE.