Taxation of ‘cuckoo funds’ key to deterring block-buying, says Minister
Finance officials considered special tax increase on funds buying up Irish property
Minister for Housing Darragh O’Brien says he is looking at ‘whatever measures that are needed, up to and including a ban’ to address the issue of bulk-buying of new homes by investment funds. Photograph: Gareth Chaney/Collins
Minister for Housing Darragh O’Brien is pressing the Department of Finance to make changes to the tax treatment of investment funds as part of efforts to prevent them block-buying large parts of housing estates.
There has been a growing focus on the taxation of so-called cuckoo funds as the Government sustained another bruising day of Opposition attacks over the purchase by funds of homes that would normally be targeted by first-time buyers.
Records released under the Freedom of Information act show that Department of Finance officials last year explored the possibility of a special tax increase on foreign investment funds buying Irish property.
Amid concerns about the level of investment by foreign funds in Irish residential property, officials discussed a special tax but concluded that it would be difficult to proof such a policy against avoidance.
Instead, officials suggested that stamp duty on residential property acquisitions over €1 million should be increased by “a per cent or two”, the records, released to Sinn Féin TD Pearse Doherty, show.
“This would probably capture many of the overseas purchases and [at least] the vast majority of the purchases by investment funds, while being much easier to administer, a lot harder to avoid, and, I expect, would also be widely politically acceptable,” one official said.
However, the proposal was not included in the budget. The officials were keen to stress that institutional investors were “an important factor in the supply of both commercial and residential property”.
Controversy over investment funds buying residential property erupted in the past week after it emerged that a global property firm has acquired hundreds of homes in two new housing developments in Maynooth, Co Kildare and Hollystown in north Co Dublin with the intention of putting them on the private rental market.
Speaking in the Dáil, Mr Doherty was highly critical of the taxation regime for investment funds as he challenged Tánaiste Leo Varadkar on the issue.
Mr Doherty claimed Fine Gael incentivised what is happening “through the taxation structure these funds enjoy” and added: “Now that the horse has bolted you’re scrambling to contain the damage that you have caused.”
Mr Varadkar said Mr Doherty’s remarks on tax were “misleading” because the Sinn Féin TD only mentioned taxes the funds don’t pay in his contribution and not those they do pay.
He said that what happened in Maynooth and Hollystown is not consistent with Government policy which promotes home ownership, and he added: “We will act on it.”
Mr O’Brien and Minister for Finance Paschal Donohoe are working on options to address the issues of funds buying large parts of housing estates with a view to proposals being ready next week.
A Government source said all of the options being considered might impinge on Constitutional rights in relation to property, and the advice of Attorney General Paul Gallagher is being sought on the matter.
They also sought to temper any expectation of an immediate solution, saying it could take several weeks to arrive at a final decision.
Mr O’Brien’s department is exploring options such as ringfencing 30 per cent of homes in new developments for first-time buyers or seeking to ban investment funds from buying up properties outside of city centre cores or areas of high-density development.
He said the practice of funds buying large swathes of housing estates is “unacceptable” and he is open to looking at “whatever measures that are needed, up to and including a ban”.
He also told Newstalk Radio: “Any legislative measure that I can take to restrict that activity, I’m going to take, but fundamentally the big role in this is with the Department of Finance.
“The tax treatment of these funds is really, I believe, what’s going to effect real change on it.”
He said he has had “very good engagement” with Mr Donohoe on the issue, insisting, “I’ve had no resistance or difficulty there.”
A spokeswoman for Mr Donohoe said: “The Minister has committed to examining the tax system.”
Mr Donohoe told the Oireachtas finance committee that funds “do have a role to play” in the housing market, especially in pre-funding the development of rental properties, and a “balance” needs to be struck as he examines the tax structure to make sure any potential change “doesn’t undermine the delivery of new homes”.