Impact of stamp duty hike divides property industry
Finance Minister Paschal Donohoe's decision to increase the rate of stamp duty on commercial property transactions from 2pc to 6pc in the Budget won't have any impact on the level of foreign investment in Irish real estate.
That's the view being taken by Killian O'Higgins, managing director at WK Nowlan Real Estate Advisors, as the commercial real estate sector comes to terms with the measure which came into effect at midnight last Tuesday.
While others within the property industry are fearful that the stamp duty hike could potentially deter international investors, Mr O'Higgins says that "those who are prepared to see Ireland as a good place to invest will continue to invest".
He said: "Although we will hear about the 'negative impact' on foreign investment in real estate, those prepared to see Ireland as a good place to invest will continue to invest - it is just the apportionment of expenditure of, say €100m [excluding fees], will now be €94m to the vendor and €6m to the Government, as opposed to a €98m/€2m split on Monday. The €100m will still be invested, it is just that the Government takes a greater share and the vendor gets less".
Mr O'Higgins did concede however that the minister's move would see commercial real estate assets take a "one-off hit" of approximately 4pc. He also said he expects some transactions to be delayed as potential buyers "re-evaluate offers and look to renegotiate deals where contracts are unsigned".
The WK Nowlan MD's take on the attitude of international investors to the stamp duty increase stands in stark contrast to that of CBRE executive director and head of research, Marie Hunt.
Ms Hunt said: "One of the welcome developments over the last number of years is that the Irish commercial real estate market has become professionalised with more than half of all investment now emanating from overseas investors and institutional buyers as opposed to being a domestic debt-funded market as we had when the market crashed previously.
"This has created a much more stable market. Unexpectedly trebling transaction costs with immediate effect in this manner is clearly unwelcome considering the reputational damage it will do with these institutional investors".
Referring to the potential consequences of the hike in the commercial stamp duty rate on the investment decisions of international pension funds specifically, Ms Hunt added: "This is an indirect tax on the pension industry which makes Ireland less attractive internationally. It will certainly have a bearing on investors' decision-making, not least the price they will bid and pay for real estate assets from this point forward".
Ms Hunt poured scorn on the Government's view that increasing stamp duty for commercial property would encourage developers to switch to developing residential property, adding: "This is simply incorrect and demonstrates the extent to which Government are out of touch with the commercial realities of development and viability".