Department warned tax exemption would clog up housing market
Revenue official suggested CGT exemption would encourage investors to sit on property
The Government is now planning to impose a levy on investors who are sitting on vacant development sites. Photograph: Alan Betson
The Department of Finance was warned last year that a five-year capital gains tax exemption for certain property funds could clog up the housing market by encouraging the funds to hoard property rather than sell it.
The warning, from a senior official in Revenue, emerged in a batch of emails obtained under Freedom of Information by Sinn Féin’s Pearse Doherty.
The Government introduced the tax incentive for property investment vehicles, or reits, in last year’s Finance Bill, ostensibly to encourage the funds to buy up and develop more land for housing.
The incentive allows funds to purchase and hold property for a five-year period without being liable for capital gains tax (CGT).
However, in one email a Revenue official warns the department that concerns had been raised about the CGT exemption, noting the funds were unlikely to “release for sale” the property involved until the exemption expires.
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This would create what he described as a “lock on the residential market”.
The official also noted that with apartment schemes, the funds tended to sell in blocks of one or two every month until the block was fully sold or rented.
“Now [the] block is incentivised to be held for five [years] – so they won’t be released until 2019-2021,” he said.
‘Drought in supply’
Mr Doherty said: “The effect of this policy was to clog up housing supply for buyers at a time of a drought in supply, pushing up house prices.”
Mr Doherty said the exemption was introduced in the Finance Bill last year despite opposition from Sinn Féin.
In an attempt to bolster the supply of housing, the Government is now planning to impose a levy on investors who are sitting on vacant development sites.
Dublin property expert Mel Reynolds questioned why the Government would introduce “further speculative land tax incentives” when land price inflation is running at close to 15 per cent year on year.
“Given spectacular windfall profits currently experienced in this sector, there is very little logic in any investor taking on development risk and building out any of these sites at any scale,” Mr Reynolds said.
“The Government is, in effect, incentivising land hoarding with official policy,” he added.