HOMEBUYERS are in line for an exemption from the property tax under a Budget plan being considered by Finance Minister Michael Noonan.
The move is prompted by government fears that the property tax – combined with the withdrawal of mortgage interest reliefs – will put people off buying a house and kill the recovery in the market that is already under way.
It is understood to be one of a number of moves being considered, with one government source promising a number of “sweeteners” to promote activity in the property market in the upcoming Budget.
Mr Noonan is understood to favour a plan to exempt all those who buy a home from the property tax – rather than a proposal by builder groups to exempt only those who buy a newlybuilt house.
Experts said the property tax holiday would have to last for at least three years to incentivise new buyers effectively.
Builder group the Construction Industry Federation ( CIF) is pressing for a 10-year exemption but Mr Noonan is understood to favour a shorter period.
In a double boost, the move would also improve employment in the trades and construction sectors.
It would have the benefit of helping the Government to offload many of the new houses which are still on the books of NAMA and the banks.
The property tax is due to kick in from July 2013 and is expected to be set at 0.25pc of the value of the property.
This would mean that a tax of €500 will be due on a €200,000 house in a full year.
But there are concerns about the impact that the property tax will have on the minor recovery in the housing market.
Some experts fear the number of mortgages issued "will fall off a cliff" after the latest figures show the first rise in home-loan lending in six years.
They believe the property tax and the loss of the mortgage tax relief, which will no longer be available from January 1, may spur some potential buyers to continue to rent.
For a new-buyer couple purchasing a €200,000 house before the end of this year, this tax relief is worth more than €2,000 next year alone.
The scheme means first-time buyers receive mortgage interest relief at 25pc, while anyone who has previously owned a home receives relief at 15pc.
The relief is paid by the Revenue Commissioners to the mortgage lender for five years, and effectively means borrowers make smaller monthly repayments.
But despite a vigorous lobbying campaign by the property industry, Mr Noonan has repeatedly stated that the relief will not be extended.
His department confirmed this again yesterday.
A government source also warned that any stimulus for the housing market would have to be tested to show that they would bring in more money than they would cost.
But a property tax holiday would still generate funds for the exchequer because of the 1pc stamp duty rate on house purchases.
There is a 13.5pc VAT rate on the sale of newly built homes.
And for both new and second-hand house sales, the exchequer benefits from the VAT paid on fees to house surveyors, conveyancing solicitors and on new furnishings.
Mr Noonan is also keen on schemes that will stimulate employment among construction sector workers such as carpenters, plumbers, architects and quantity surveyors.
They currently account for one-quarter of those on the Live Register. And many more have been forced to emigrate to find work.
Mr Noonan is also facing demands for an exemption from the property tax from those in negative equity and those in mortgage distress.
The Department of Finance said it could not comment on any matters relating to the property tax.
"All details on the property tax will be announced in the Budget on December 5," a spokesman said.