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Budget Boost for Irish Property Market
Amid the much anticipated austerity measures in Budget 2012 were significant provisions to re-activate Ireland’s property market. The Minister for Finance announced:
- That the Irish Government’s proposal to abolish upwards only rent review provisions in existing commercial leases has been dropped;
- That stamp duty on non-residential property has been reduced to a flat rate of 2%;
- Capital Gains Tax relief for property purchased prior to the end of 2013; and
- Mortgage Interest Relief is available as an incentive for purchase of homes in 2012.
Upwards only rent reviews
In response to the hardship being faced by many tenants since the beginning of the economic downturn, and strong lobbying from the retail sector in particular, legislation was enacted in 2009 that prohibited upwards only rent review provisions in commercial leases granted after 28 February 2010. When the current Government took office it gave a commitment to retrospectively abolish upwards only rent review provisions in leases granted prior to that date. This commitment introduced considerable uncertainty into the property market, with the result that trade in investment property all but ceased, even in relation to prime assets with strong covenants.
From the outset there were questions raised as to whether legislation to retrospectively abolish upwards only rent reviews would be in conflict with the Constitution. The Government has now been advised that it would be extremely difficult for any such legislation to survive a Constitutional challenge. Following the Minister’s confirmation in Budget 2012 that there will now be no retrospective statutory intervention in the rent review provisions of existing leases, it is anticipated that the excellent opportunities presented in the Irish property market will be availed of by both indigenous and foreign institutions and investors.
The reduction in stamp duty payable in transactions in non-residential property from a top rate of 6% to a flat rate of 2% will reduce the cost of acquiring Irish commercial property, in addition to boosting the value of existing property portfolios. This change is effective from 7 December 2011. There is no change to the rate of stamp duty payable in relation to residential property.
Capital Gains Tax Incentive
As an incentive to encourage activity in the property market over the next two years, the Minister introduced relief from Capital Gains Tax for both residential and non-residential property purchased between 7 December 2011 and 31 December 2013. If a property is purchased within this period and is held for at least seven years, any gain attributable to that seven year holding period will be exempt from Capital Gains Tax.
Mortgage Interest Relief
A further stimulus for the residential property market came in the form of mortgage interest relief. Mortgage interest relief will not be available to home owners who purchase after the end of 2012. However, those who purchase a home in 2012 will benefit from relief at 15%, or at the higher rate of 25% if they are first time buyers.
There is considerable pent up demand for housing, with many choosing to rent while they wait for prices to stabilise. This initiative, particularly when taken with other proposals to assist first time buyers, should encourage people to purchase in 2012.