New possibilities open with Living City Initiative
Caps on the amounts of tax relief available for commercial projects has enabled the Government to finally get European Union clearance for its long awaited new urban renewal scheme, known as the Living City Initiative.
The scheme is expected to generate demand for properties built before 2014 and which are located in the centres of Dublin, Cork, Limerick, Waterford, Galway and Kilkenny.
Minister for Finance Michael Noonan is expected to sign a commencement order within a few months which will allow property owners to claim tax reliefs for refurbishment works on those old properties. His department is currently in discussions with local authorities to finalise the areas of these cities which will qualify.
Originally proposed in 2012 for residential and retail owner occupied properties in Limerick and Waterford, the proposals were subsequently extended to the other cities and to include other types of properties including those with retail or cultural use at ground floor and residential overhead.
Originally it proposed that owner occupiers who refurbish buildings, would be allowed to recover of the full refurbishment cost against tax each year over seven years. To comply with EU rules it was also proposed to cap expenditure on the amount that could be claimed for commercial refurbishment work. This would have capped expenditure by companies to €1.6m and €400,000 for individuals.
However a further change to the cap was required to achieve EU clearance. This abolished the cap on expenditure and replaced it with a cap on the amount of tax relief.
"The amount of tax relief which will be available for any individual project is now, effectively, being capped at €200,000 regardless of how many investors there are. This is an overall limit, it has to be shared out among the participants," a spokesperson for the Minister explained, and added
"It should be made clear that there is no limit to the amount of expenditure which can be incurred, just to the relief."
"Residences are not treated (by the EU) as undertakings for State Aid purposes," she said.
Minister Noonan explained that the initiative is "designed to bring families back into our city centres and to maximise the use of existing pre-1914 buildings by transforming them into modern homes."
Home owners can also spread the relief against their income over 10 years rather than seven.
However it remains to be seen as to how many families have the appetite and funds to transform former offices or pre-63 bed sit properties into family homes especially now that the Central Bank has restricted borrowing with 20pc deposit requirements on residential mortgages for home buyers and 30pc for buy to let investors.
Furthermore while it is difficult enough to get a mortgage for a new property or one in good condition, banks are even more reluctant to lend on properties in need of substantial refurbishment.
"In the case of some of these old city centre properties the refurbishment itself could cost more than the price of the property," says John O'Sullivan of Lisney. "Banks seem to be more cautious about lending for refurbishment cost," he adds.
This means that in order to qualify for the tax relief, buyers will need to have considerable cash resources of their own, a matter which will no doubt be scrutinised by the Revenue Commissioners before they grant the tax allowances.
Dublin City Council's hopes that the initiative may help to bring more life back into the Georgian areas of Dublin 2 in the evenings may also be about to be thwarted by the market. During the recent crash it was felt that even the properties around Merrion and Fitzwilliam Squares needed refurbishment tax incentives as they were experiencing high vacancy levels.
However in the last 12 months, south core Georgianna D2 properties are again attracting interest for commercial use. Sarahkate Nolan of Lisney says interest is coming from investors as well as from some accountants and solicitors seeking city centre office space for their practices.
She currently has two Georgian office properties for sale: 53 Merrion Square with a net floor area of 8,500 sq ft and a €3m price tag and 6 Fitzwilliam Place which extends to 3,800 sq ft and has a €2.1m asking price.
Fiona Kennedy of CBRE says that about nine out of 10 enquiries for Georgians come from investors who are interested in commercial uses with only a small minority interested in residential.
CBRE has recently gone sale agreed on 69 Merrion Square for around €3.5m compared to its €3.1m asking price. As well as a 5,811 sq ft Georgian building, the deal also includes a 2,226 sq ft modern mews at 69 Fitzwilliam Lane. The majority of its space is occupied by The Arts Council and generates a rent roll of €239,406. The Georgian building also contained a three bedroom apartment on its third floor.
On Dublin's northside vacancy levels for old properties are believed to be lower because many of them have been subdivided into bed sits. However many landlords are being forced to invest considerable sums to ensure that these properties comply with higher building standards and in order to convert them to self-contained accommodation.
Such landlords may find it easier to sell them on before refurbishment as they may not be able to claim the tax relief themselves unless they live in the property. If they sell them on to families they will also be effectively reducing the stock of rental accommodation and thus the overall stock of housing.
Among the properties that could well benefit from the initiative are those on Henrietta St, next to the Kings Inns, off Bolton St. It is home to some of the finest examples of Georgianna in Dublin but has suffered from the cost of conservation which has deterred buyers. The MacEoin architectural family have long been aficionados of Georgian houses and bought number 7, a terraced four storey over basement in 1967 to prevent its destruction. They have since let it out to artists for their studios. Emmet Barone of Hassett and Fitzsimons is asking €1.2m for the 8,200 sq ft property.