Property Investor

If the Green Party has its way, there will be no immediate recovery in property values, writes JACK FAGAN

THE LAST few months have been spent analysing the wreck that is the Irish property market. Though most attention in recent weeks has centred on Liam Carroll’s attempts to save the Zoe group of companies, punters have been equally interested in the huge price reductions for new apartments and second-hand homes.

Luckily for first-time buyers, there are mortgages available for many of those who can comply with the strict new ground rules on job security, earnings and savings. For others anxious to trade up now that prices are on the floor, there can be little prospect of securing bank loans unless the Nama strategy works and the banks are recapitalised to resume lending, first of all to businesses and, after that, to house purchasers.

Mind you, the events of last week did little to inspire much confidence in the property industry. Firstly, there was the proposal to introduce a punitive property tax on all homes to compensate for the abolition of stamp duty. The new tax was also to apply to first-time buyers, a change not expected because they were already exempted from paying stamp duty. The recommendations from the Commission on Taxation would hit residential investors hardest of all because they would have to pay both the stamp duty and the property tax at a time when rents are continuing to fall and the vacancy rates are rising even in Dublin city centre.

A property tax directly affecting both first-time buyers and residential investors would, at the very least, create uncertainty among the two key groups who would normally be expected to clear the enormous backlog of new homes overhanging the market. For the moment, residential investors will remain out of the market, if only due to difficulties in getting mortgage approval.

If the Green Party has its way, there will be no immediate recovery in property values. Their Minister for Energy and Communications, Eamon Ryan, is quite rightly concerned that there should be no repeat of the speculative property bubble that led to the present difficulties. However, he also argued last week that a significant fall in values “is a good thing and we are not looking for a return to property prices going back up”.

On the contrary, homeowners who were mere spectators as the property bubble burst will be anxious to see a recovery in values to allow them to cash-in on their investment when their children have grown up and moved out. Part of the proceeds of the sale of many family homes are frequently given to sons and daughters as deposits on their first homes. Gently rising values are a long time function of most property markets and, with a bit of luck, prices here will start moving up again once we shake off the current malaise.

The Green Party is on safer ground in its plans to introduce a windfall tax of 80 per cent on profits from increases in land values once rezoned. Unfortunately, this measure was not in place during the lengthy property boom when many local authorities seized the opportunity to rezone considerably more land for housing and commercial developments than they are likely to need for many years to come. The rush to rezone has meant that some councils have enough development land to carry them through to 2075, according to the Minister for the Environment, John Gormley. Once the zoning system is reformed, development plans for the various local authority areas will be aligned with regional planning guidelines, spatial strategies and population demand.

That should mean the end of the road for many shifty characters who frequently engineered the rezoning decisions with the help of compliant county councillors. Rezoning decisions should in future be an executive function rather than one for councillors.

Either way, it is a bit rich for the Green Party ministers to expect owners of newly zoned land to hand over a whopping 80 per cent of the enhanced value. The landowners simply won’t buy it. Perhaps a tax of no more than 40 per cent might get the ball rolling.