Thursday 19 September 2019

Paul McNeive: 'Don't blame cuckoos for the shortage of nests'

The right moves

Paul McNeive
Paul McNeive

Paul McNeive

There has been some nonsensical comment recently about the so-called 'cuckoo funds', and one gets the scent of a traditional Irish, anti-landlord and anti-developer prejudice.

'Cuckoo funds' is the term being applied to institutional purchasers (or funds) buying residential properties for renting into the private rented sector (PRS).

Last year, 11pc of all homes sold in Dublin were bought by funds, but a fifth of the homes bought by funds were outside the capital. I see those proportions increasing in the medium-term. One of the big reasons for all this, is that Ireland never had the institutional market for residential property investment that was commonplace around the world. For decades, market commentators moaned - "If we only had proper long-term landlords like they do in Germany/Scandinavia/wherever". So there is a large element of catch-up going-on, in creating this professional landlord market.

Chief among the criticisms has been the accusation that these funds are responsible for raising rents. No they are not! They are responsible for reducing rents.

At the heart of this accusation is the notion that landlords can "make-up" the rents they charge. They can't. It's tenants bidding against each other that sets the levels of rent.

Rents are set by the balance between supply and demand. Institutional purchasers have significantly increased the supply of units. Any agent will tell you that many schemes they are handling would not have been built at all under the old model of bank borrowings and selling individual units over years. And just because one fund owns all of the apartments in a block, instead of many of them being owned by individual landlords, doesn't change the rental value.

Much of the carping in the rental sector is about tenants' lack of security, but this class of institutional landlord is exactly what we need. They want long-term tenants. Tenants of funds don't have to worry about their home being sold because the owner wants it back. They are also professional landlords and they operate to higher standards than most of the market, which is made-up of private, amateur, landlords with only one property.

Another misconception is that they pay no tax. They do. In the Finance Act 2016, the Government (belatedly) introduced a 20pc tax on all income and gains in these funds. There are a few exceptions, but the majority of the funds active here pay tax.

They are paying 20pc tax on income and gains, stamp duty on purchases, VAT and local property tax on every unit they own. That's a lot better than us having less apartments, and less tax. These funds have become significant taxpayers in the State and pay multiples of what the other 'multinational' sectors pay.

The more of these large, institutionally-funded schemes we get the better, and the sooner rents will decrease.

The real reason that people who want to buy houses can't get them is the lack of supply, which has been caused by this, and previous, governments.

The fatally flawed ideology that the private sector would provide 'social housing' has meant that very little social housing has been built. But trying to create social housing by taxing the private sector into non-viability, with social housing levies and VAT, has meant that too few private sector houses have been built either. That's the real cuckoo.

Peter Cosgrave R.I.P

The property world has been saddened by the death of Peter Cosgrave, whose funeral takes place today. Peter spearheaded the expansion of the Cosgrave Property dynasty into the commercial arena, becoming a major player in office and retail development and investment, and adding to a reputation as a top residential developer.

He was one of the nicest people you could meet in the business. He was quietly spoken, and was never changed by his great business success. In property development, the Cosgrave name is synonymous with quality. Peter Cosgrave was exactly that.

Ar dheis Dé go raibh a anam.

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