Sunday 18 August 2019

Block-buying necessary to support apartment developments, tax group claims


Finance Minister Paschal Donohoe has pledged to review investment vehicles such as REITs. Photo: Collins Dublin, Gareth Chaney
Finance Minister Paschal Donohoe has pledged to review investment vehicles such as REITs. Photo: Collins Dublin, Gareth Chaney

Michael Cogley

Housing developments that have been block-bought may never have been built if it was not for institutional investors, the Government's high-level tax strategy group has stated.

Block-buying has been heavily criticised for forcing traditional would-be homeowners out of the market. Activity among institutional investors has also been criticised for having an inflationary effect on the housing market.

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In a 40-page report on real estate investment trusts (REITs) and Section 110 companies, the group said the role of the institutional investors was "minor but growing", particularly in the urban apartment market.

"An investment strategy which includes the purchase, including by forward funding, of an entire apartment block or development inevitably creates an impression that the investment is disproportionate to other activities in the market, particularly the activities of private home buyers," the group said.

"However, this needs to be seen against a background of still-muted supply in the property market and a continuing shortage of rented residential accommodation."

It is the latest in a line of reports that have sought to downplay the influence of institutional investors in the country's housing crisis.

In April, estate agent Hooke & MacDonald said that claims investors were depriving first-time buyers of getting on the property ladder were both a "fallacy" and a "misrepresentation".

It also said that a significant proportion of new apartment developments would not have been built if it were not for investment funds.

Earlier in the month, AIB published a similar message in its own report on the build-to-rent sector, insisting that viability issues would be "even more pronounced" if it was not for the presence of such investors.

In its report, the tax strategy group also highlighted that dividends paid by REITs had increased 10-fold to €93.5m since their introduction to the Irish market four years ago.

Legislation was approved by the Dáil in 2013 that allowed companies to set up specialised investment trusts to help attract capital into Ireland's housing market.

Under the REIT structure, companies only pay tax on their profits after 85pc of the rent they earn from tenants is returned to shareholders.

Finance Minister Paschal Donohoe has committed to conducting a review of REITs, Irish real estate investment funds and Section 110s.

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