Saturday 20 April 2019

Noonan's failure to adjust 80% 'windfall tax' could stifle recovery

An aerial view of the IFSC in Dublin - Around half of all contracts that are won here go to companies in Dublin
An aerial view of the IFSC in Dublin - Around half of all contracts that are won here go to companies in Dublin

Peter Flanagan Commercial Property Editor

THE Government did not do enough to encourage the building of badly needed offices in the country, and should have cut or repealed a key levy to encourage more building.

While the construction and property industry have broadly welcomed the Budget's measures, the sector had been hoping that the Government would repeal or at least cut back an 80 per cent "windfall tax" on the sale of all rezoned land.

However that was a glaring omission from the measures Finance Minister Michael Noonan outlined to stimulate the sector.

The Sunday Independent understands that the Government came close to at least cutting the rate but in the end decided against making a change. As it stands, if the planning permission for a site is changed, then the profits from the sale of any building on a site will be subject to capital gains tax of 80pc.

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The tax only applies if the planning permission on a site is changed, and with several landbanks around the country zoned for apartment blocks that are no longer required, the building of badly needed houses or office blocks are apparently being held back as a result.

The Budget, which included an extension of the capital gains tax exemption on commercial property transactions until the end of next year and a much greater use of Nama in the sector, was broadly welcomed by the sector.

Several industry figures contacted by this newspaper, however, expressed frustration that the windfall tax was not touched.

Earlier this week UK property firm Development Securities bought a site in south Dublin but CBRE's head of research Marie Hunt said that was not a signal that there would be a run on so-called "second-level" sites, and that was at least partly due to the windfall tax.

"There is not a lot of land coming to the market and that is in part a problem of supply and the need to amend planning permissions.

"If you look at what has been trading, it has been small in-fill development. The problem is that in nine-out-of-10 cases you need to amend the planning laws to make a development work," she said.

"Many of the permissions already in place are for low-density apartments, which are no longer needed.

"That means you have to deal with planning and a lot of the time the windfall tax is putting off potential in-vestors," she added.

"When the 80 per cent rate was installed it was probably needed because there was such a surplus of buildings, but that is no longer the case and we now have a shortage of housing and offices," Ms Hunt said.

Tom Parlon, who heads lobby group the Construction Industry Federation agreed. "We were disappointed that the Government didn't tackle this," he said.

"It seems that zero fees have been gained from the measure and it would have been a 'low hanging fruit' Minister Noonan could have grabbed to help the sector," he added.

A spokesman for the Department of the Environment said the Budget had been welcomed by the industry.

Sunday Independent

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