Saturday 3 December 2016

International investors remain crucial to recovery

Jonathan Hillyer

Published 16/10/2016 | 02:30

HWBC’s Jonathan Hillyer says caution is required in relation to changing our tax regime
HWBC’s Jonathan Hillyer says caution is required in relation to changing our tax regime

Now the pundits have had their say on 2017's Budget, and now that things have calmed down a little, one might surmise that with the political uncertainty that is likely to prevail elsewhere in the world over the next 12 months, this Budget is exactly what Ireland needed.

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The foreign investor, who has been instrumental in Ireland's recovery and is now looking to the medium to long term, would likely give an approving nod to Minister Noonan's budget speech. A minority Government has managed to come to a consensus around a budget involving modest fiscal expansion as opposed to big, risky populist gestures.

The positive perception of Ireland's continuing commitment to sensible fiscal management can only help us when existing and potential investors come to compare us to our European competitors. Stability is the watchword that provides the basis for continued inward investment of every kind, including property.

In terms of specifics, there was no clarification in the Budget regarding Section 110 purchase vehicles and other tax efficient structures used for the acquisition of real estate (ICAVs, QIAIFs, QIFs etc). This should be addressed in the upcoming Finance Bill. If there is any retrospective move or radical attack which affects the tax efficiency during the life or at the end of the property hold, this could have a material impact on values especially on larger lot sizes or portfolios where such structures are most common. The Irish commercial real estate market is increasingly dominated by medium to long-term Irish and offshore Institutional investors who do not use Section 110 but do consider ICAVs etc. Deterring these investors is unwise as they are crucial to the future health of the overall market.

In the brief time it has for consultation, the Government must ensure that if it must tinker with the existing tax structures; that it does so in such a way that Ireland remains competitive compared to its European peers. International investors are a crucial source of capital especially since domestic funding is still insufficient to support Ireland's much needed new development in the office and residential sectors.

Unsurprisingly, it was the Budget's residential market measures that attracted the big headlines. My view is the Government missed an opportunity to properly stimulate the supply side of the market in choosing to put the money in the hands of potential first-time buyers. Rising construction costs and local authority fees continue to be the main concern for most developers. If they don't respond by building more starter homes, the tax rebate could end up simply bidding the market higher.

Notwithstanding that reservation, I believe Ireland's recovery is still on track and that the confidence that has underpinned the dramatic turnaround in the property sector looks set to continue.

  • Jonathan Hillyer is a director at independent property firm HWBC

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