Tuesday 25 October 2016

The Right Moves: Banks must 'get real' and Government must lay off first-time buyers

Published 13/10/2016 | 02:30

The Central Bank headquarters in Dublin
The Central Bank headquarters in Dublin

In two recent transactions, one commercial and one residential, I have come across nervousness and long delays over 'Exempted Development'. The exempted development regulations refer to a development which does not require planning permission - for example, extensions under certain sizes, or changes of use between certain categories of commercial premises.

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Not always known, and certainly not advertised by local authorities, is that development work carried out which should have had planning permission, but which goes unchallenged by the local authority for seven years, also becomes exempted development.

In other words, while the work technically doesn't have planning permission, the local authority cannot take any enforcement proceedings against you, or require you to demolish the building.

If a premises is being used for, say, retail or offices, and that use of the building required planning permission, but it was never sought and unauthorised use continues for seven years without being challenged by the local authority, it too becomes exempted development. Again, the local authority cannot object to the unauthorised use, and it can continue.

These issues arise frequently in property sales. For example, in any sale of a large, older multi-tenanted investment property, there will invariably be minor breaches of planning which have existed for decades and tenants who have changed the use of, say, a store into a shop.

Qualifying as exempted development is as close to having planning permission as makes no difference. There are some small technical reservations attached to that; the chief one being that if the property is ever compulsorily purchased for some reason, then no compensation will be payable for the part of the property that should have had planning permission.

However, those cases are rare and any valuer could advise on the likelihood of it happening. Furthermore, any loss in value will probably be a small part of the overall.

In a confident and rising market, purchasers, solicitors and lenders tend to take a practical view of these technical discrepancies, and keep going. However, in what I'm sure is an over-reaction to the discovery of a lot of flawed titles - arising from short-cuts taken during the 'boom years' - banks are taking an unnecessarily cautious stance.

Deals are being delayed and vendors are sometimes forced to choose between applying for planning permission for retention and wasting months, or restricting their market to cash buyers. Lawyers and agents need to take a more confident stance in assuaging nervousness by banks.

Elsewhere, my blood boils at some of the commentary on the 'housing crisis'. The new homes market is dysfunctional. It crashed at the same time as all other markets, but those sectors have recovered. Why is the new homes market behaving so differently?

For example, it's not long since we were all bemoaning the lack of supply of new offices. But the economy improved, rents increased, and all of a sudden we have an abundance of cranes on Dublin's skyline and enough new office space for 45,000 people by 2018. Similarly, we have a shortage of hotels. But the VAT rate was reduced, the economy improved and suddenly new hotels are being built and existing ones extended.

So why hasn't the supply of new housing reignited? The answer is that the market is being killed by the tax take on new homes. The Central Bank's lending restrictions are having an effect (a good thing) and there is no shortage of buyers, but they can't afford to pay all the taxes.

If it was profitable to build, developers would be building. Proposals such as the 'vacant land tax' are ludicrous. If development isn't viable, adding more taxes makes it worse. Similarly, giving all buyers a grant when there is no supply will simply increase the price of houses by the amount of the grant.

The only solution is to slash the tax take on new homes, which will see lots of sites being opened up within weeks.

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