Government should not egg on investors
Published 26/06/2014 | 02:30
PRICES for property are rising at a crazy level, particularly in Dublin.
Have we learned nothing from the Celtic Tiger bubble and bust?
The obvious problem is a shortage of supply, with massive pent-up demand in the capital for homes for those in their 20s and 30s. They can't get their offers accepted by sellers as there are so few properties for sale.
A chronic shortage of properties for sale is certainly a large part of the problem, but our old friends – the buy-to-let investors – are also messing up the market.
This is particularly the case as most of these are cash buyers, and so are squeezing out potential first-time buyers.
Prices rose by more than 10pc across the country last year, and by more than double that in the capital.
The rest of the State has seen prices rise by just 1.8pc in the past year.
This surging property inflation in the capital is not due to mortgage lending, even though banks like Ulster Bank admitted recently that it is prepared to lend a mortgage worth up to five times a borrower's income.
Cash buyers account for more than half the purchases in the market.
They are steaming in to buy investment properties encouraged by rising rents, a shortage of supply and the return of economic growth.
But the Government also needs to share the blame.
Finance Minister Michael Noonan extended a special tax arrangement for investors in the last Budget.
Investors who buy property before the end of this year, and hold on to it for at least seven years, will not face a capital gains tax bill. This means they don't have a tax rate of 33pc on their gain from holding the property.
The Government is encouraging investors. That is the last thing we need.
Instead of providing initiatives aimed at helping first-time buyers to borrow a higher proportion of the property's values, measures to discourage investors would make more sense.