Stamp duty cut to prevent a fall of 3.8pc in values
Irish commercial property values showed a 0.2pc rise in capital values in the final quarter of 2011 according to the latest survey by IPD and the Society of Chartered Surveyors Ireland (SCSI).
However this was not the recovery for which the industry had been waiting. The reduction in stamp duty, from 6pc to 2pc, had an immediate effect on valuations for the quarter, but did not change the fundamentals behind growth -- occupier demand and investor sentiment.
If it were not for the stamp duty cut, then values in Q1 this year would fall 3.8pc.
That said, the removal of uncertainty around upwards only rent reviews, reductions in capital gains tax and stamp duty -- should have a positive impact in time.
Capital values have now fallen on average by 64.8pc from peak. This has been relatively uniform across the sectors, with retail values declining 68.5pc, offices 62.6pc and industrials 60.3pc.
Rental values, the basic indicator of occupier demand, fell 14.5pc in 2011, not quite as steep as 2010's 19.4pc.
But there is an upside -- this makes Ireland competitive and the transparency and clarity is attractive to investors chasing strong income returns and those who are willing to stomach the risk.
In 2011 income return reached 10pc and in more distressed assets even higher.
SCSI members report that the Budget has improved demand. While some of the details of the CGT holiday have to be finalised, the reduction in stamp duty and the certainty around rents has boosted confidence as well as activity.
Ireland's attractiveness was strengthened by multinationals locating here.
However, access to finance remains a key issue for domestic investors. Supply is also likely to increase in 2012 from NAMA and Minister Howlin's plans to rationalise the state's property portfolio which could see more property on the market.
While it is too early to forecast first quarter results, we welcome the positive trend.
It is our view that by improving access to finance and continuing to make Ireland an attractive investment location, the Irish Government can succeed in its Budget intention of stimulating investment which should result in more much needed jobs and transaction tax revenue for the exchequer.
Greg Mansell is IPD senior research manager for UK and Ireland, and Hugh Markey is chair of the commercial property professional group of the Society of Chartered Surveyors Ireland.