State struggles to piece together property crisis jigsaw
Business Week: Also in the news was CEO pay increases, Apple tax, and trackers
The seemingly endless increases in house prices of recent times will have concerned many homeowners ahead of a review of house valuations in November 2019 for the local property tax. Photograph: iStock
A deluge of property news this week laid bare the challenges facing the State, with firms being driven out of Dublin, planning difficulties, and yet more house price increases dominating the headlines.
Figures from the EU’s statistics office Eurostat told us what we seem to be told every week. House prices in the State rose 12 per cent year on year in the third quarter of 2017, second only to the Czech Republic.
That compared to a 4.6 per cent increase across the European Union and a 4.1 per cent increase in the euro zone.
The seemingly endless increases in house prices of recent times will have concerned many homeowners ahead of a review of house valuations in November 2019 for the local property tax.
However, Minister for Finance Paschal Donohoe was able to provide some relief this week when he said the review would focus on keeping bills for households roughly in line with current levels in the years ahead.
One thing that would help stabilise the market is more houses, and the latest construction industry snapshot showed activity rose at a faster pace during December as new orders showed strong growth.
The rate at which activity increased was the sharpest since June in the Ulster Bank construction purchasing managers’ index (PMI). Housing was again the strongest performing sector.
Indeed, a number of developers are said to be taking advantage of the Government’s new “fast-track” planning system. An Bórd Pleanála has received 13 applications for developments that could see the construction of up to 4,000 housing units.
However, the planning authorities shot down proposals for 927 housing units at Clay Farm in Leopardstown from developer Michael Cotter’s firm Viscount Securities. It would have been one of the biggest residential housing developments in the State.
Elsewhere, US hedge fund York Capital is planning a €250 million initial public offering of an Irish industrial and logistics property investment trust called Core Industrial in Dublin in the coming months.
The New York-based fund plans to put about €80 million of industrial units into the quoted company. This includes property in locations like Rathcoole, Clondalkin and Finglas in Dublin that it snapped up after the property crash.
Ulster Bank’s PMI also showed commercial activity also increased at a rapid rate, which might be just as well if the view of Lisney divisional director Paul Hipwell is anything to go by.
He told The Irish Times this week that the continued increase in office rental prices is forcing companies to consider locations outside Dublin city centre.
A Lisney report showed Facebook and Google will occupy 38,500sq m (414,410sq ft) and 74,600 sq m (802,990sq ft) respectively in the capital by the end of this year, or 4 per cent of all commercial office space. “Clearly if there’s a sudden shock to the system and one of them has to pull out that would clearly have adverse effects,” Hipwell said.
Separately, Goodbody said office rental prices in Dublin have edged towards €65 per square foot.
They call it the L’Oréal defence. A study of executive salaries by the Irish Congress of Trade Unions this week showed the gap between the pay packets of chief executives and those of average workers is widening in most major Irish companies.
Because We’re Worth It: The Truth about CEO pay in Ireland showed pay rises for some chief executives of up to 100 per cent between 2015 and 2016, and a near doubling of cash bonuses in some cases.
Average basic chief executive pay, before bonuses, rose 12 per cent in 2016 to €786,250. Average total pay came in at almost €2.1 million. This was an increase of only about 1 per cent, but total remuneration increased in 16 out of 27 companies looked at.
Meanwhile, there were a number of developments at some of the Republic’s biggest companies.
Ardagh, the glass and metal containers manufacturer, decided to close the Milford, a US glass bottle site it acquired almost four years ago, as it grapples with a decline in demand in the mass beer market. About 250 people are employed there.
In financial services, Irish Life was threatened with industrial action after it moved to close its defined benefit pension scheme to future accruals in the middle of this year, even though it is in surplus. It plans to transfer staff to a defined contribution plan.
Elsewhere, there were cries of Mamma Mia! as Birds Eye owner Nomad Foods said it plans to cut itself a big slice of the Irish and British pizza markets with the €225 million purchase of Goodfellas.
The business employs about 430 people in two manufacturing sites in Kildare and Longford. While all will move to Nomad, the firm said it does not plan to move production from those two sites.
The Government’s seemingly fruitless challenge to the Apple tax ruling received another blow this week as the tech giant said it expected to pay a $38 billion (€31 billion) tax bill – the largest of its kind ever – as it repatriates overseas cash.
Most of that was held by an Irish arm before the group moved the residency of that unit to Jersey at the end of 2014 following changes to the Republic’s tax laws which meant Irish-registered companies could no longer be “stateless” for tax purposes.
New US tax rules mean there is little financial advantage for Apple in fighting the European Commission ruling that it must pay up to €13 billion in back tax to the Republic, as the rules would require tax to be paid either in the United States or here.
The announcement therefore means the only benefit in appealing the commission’s ruling would be in escaping interest and penalties attached to it.
The cost to the Irish State in fighting the case has now risen above €4.6 million. Legal bills, tax advice, and translation costs have climbed substantially over recent months with a single legal firm having been paid close to €2 million.
Tracker mortgage scandal
There were some more developments in the tracker mortgage scandal as both Donohoe and the Central Bank’s head honchos were before the Oireachtas finance committee.
Central Bank governor Philip Lane pledged to go after senior bankers to investigate potential culpability, but there was some scepticism on the committee as to whether this would lead to anything meaningful.
About half of those affected by the €900 million scandal have received redress and compensation, with the remainder to be sorted out by the end of June.
Meanwhile, Donohoe was called upon to support class-action legislation, which allows victims of widespread harm to come together in search of collective redress.