Rents could crash following Budget moves over benefits
Published 04/12/2011 | 05:00
MORE than 130,000 property investors could face a massive blow in the forthcoming Budget as proposed plans to overhaul the €510m rent supplement scheme could see rents crash.
Joan Burton, Minister for Social Protection, is seeking to cut the €510m annual rental-supplement bill paid by her department as part of the forecast €700m cut to the benefits budget.
Some 95,700 people in the country are in receipt of the rent supplement payment -- which ranges from €500 per month for a family with three children in Leitrim up to €1,100 per month for a similar family in south Dublin.
The number of people receiving the benefit has jumped 60 per cent since 2005, when the total bill was €369m.
It is understood that Ms Burton's department is looking at using its massive buying power to bring down the rents charged by landlords, as well as changing the limits and conditions associated with the benefit.
However, the supplement is believed to massively distort the private rental market as the sheer volume of payments has kept monthly rents artificially high. Rents this year have remained reasonably steady -- rising 0.1 per cent in the third quarter of the year. Private rents fells sharply in 2009 but have been reasonably constant since then.
Cutting the ceiling on rental payments could see monthly rents crash dramatically, according to property analysts. This will cause increased pressure on the middle classes who invested in rental properties during the boom years.
Falling rents, the second-homes tax and crushing negative equity add up to a major problem for owners of apartments. Government figures show that 99,000 people own a second property with a further 35,000 owning three or more properties .
Latest Central Bank figures show that close to 100,000 mortgages are either in arrears or have been restructured by banks -- that's more than one in 12 home loans.
A major fall in rental prices is likely to see investors face more problems in paying loans on rental properties, which may lead to a spike in arrears and an increase in repossessions by banks.
Sunday Indo Business