Dear Mr Cowen: how you could help to kick-start the market

OPINION:With the market in turmoil, one Dublin estate agent suggests some steps the Government could take to help the industry

STAMP DUTY

There are many ways of adapting stamp duty to encourage movement in the property market.

In the boom years stamp duty was a high source of revenue for the Government but that has all changed as the latest exchequer returns show.

It is widely acknowledged that the overall tax base must now be widened and one way to do that would be through a well thought out and equitable property-based tax to replace stamp duty which, in itself, acts as a barrier to transactions in the market, particularly during a downturn.

But some consideration must be given to purchasers who paid large amounts of stamp duty in recent years.

If stamp duty is not to be abolished, the recent restructuring of stamp duty to a much more simplified system actually allows the Government far more leeway to amend rates as economic circumstances require. As a stimulus to the market, rates can be cut aggressively and, likewise, in times of high price inflation rates could be increased to cool the market.

The Government must move away from its reliance on stamp duty towards a more equitable form of property-based taxation. The base rate of 7.5 per cent stamp duty above €125,000 and under €1 million, which affects 80 per cent of second-hand houses, is outrageous by European and world standards, and acts as a serious impediment to labour force mobility in the wider economy.

HOUSE PRICE WEBSITE STATE-RUN HOUSE PRICE INDEX

A transparent, publicly accessible record of property sale prices is long overdue and the Government must make the necessary legislative changes to allow this to happen for the benefit of sellers and buyers alike.

Brief information – the address, type of house, size of house, condition of house and sale price – would be sufficient. This crucial area is standard practice in the UK and will help us to recover more quickly if we adjust promptly.

Also required is a more timely data series tracking house price movements. While the PTSB/ESRI index is widely acknowledged as the most comprehensive price survey in Ireland, the lagging nature of the index means it is confusing for buyers during periods when property market cycles turn.

When prices stabilise it is often three months or more before the PTSB/ESRI index reflects this, leading buyers to believe that prices are in fact still falling when the reality on the ground is very different. We would also argue that this index currently shows that property prices have reduced by 14 per cent on average since their peak, but the reality is that the real change is closer to 40 per cent.

RECAPITALISATION

It is important that the Government attaches conditions to any bank recapitalisation by insisting that the banks must use a certain percentage of the funding as capital to further the provision of mortgages to the property sector.

The availability of adequate funding for property purchases is fundamental to the future of this economy.

HOME CHOICE LOAN

A Government “Home Choice Loan” should be adopted for all categories of properties, including those affordable homes being sold under Part V arrangements.

The Government also needs to introduce the shared equity product which they announced in Budget 2009 as soon as possible.

TAX CREDIT FOR FIRST-TIMERS

A tax credit scheme should be introduced for first-time buyers who purchase new homes for a period of three years. This could be similar to the tax incentives available to owner-occupiers in tax-designated areas and spread over a 10-year period.

This would be beneficial to buyers and helpful in selling the standing stock of new homes.

The cost of this scheme will be spread out over a long period of time while the benefits, in terms of unlocked tax revenue (VAT, etc), would be immediate.

GREEN INITIATIVES

The Government’s initiative to retrofit existing homes to improve energy efficiencies will lead to jobs in the construction sector as well as improving the standard of housing stock in the country.

Ireland should seize the opportunity to become a world leader in this area, as it has a vital role to play in a sustained economic recovery on a global scale. Just as Ireland’s skillset adapted to the hi-tech global arena of the last boom, so it must adapt to take advantage of what will undoubtedly be one of the strong growth sectors of the global economic recovery as it develops.

INVESTORS

There is an overhang of vacant new properties in Ireland. It could be prudent for the Government to consider some form of tax inducement along the lines of Section 23 relief for investors for these properties. This would not lead to any significant disadvantage for first-time buyers due to the level of stock available and would not place any upward pressure on prices in the open market.

Conor Gallagher is a partner in Douglas Newman Good