People are hoarding land - because that's what they were told to do by Budget 2012
As the Government struggles to come to terms with the threats and opportunities presented by Brexit, a seemingly intractable housing crisis and the political 'hot potato' du jour of the tax structures the State employs to make Ireland more attractive to international investors, those looking for clarity could have done worse than attend the recent Real Estate Stakeholders Debate Brexit summit, of which the Sunday Independent and Irish Independent are media sponsors.
What follows are selected highlights from the event's expert panel discussion which was led by the summit's MC, broadcaster Pat Kenny.
On the changes now taking place in the commercial real estate market
Head of commercial property at Maples & Calder, Diarmuid Mawe, noted how the early opportunistic investors who had acquired loan books from Nama and other financial institutions involved in deleveraging in the post-crash period, were now being replaced by longer-term, institutional investors.
These investors viewed the Irish market as being more 'core' than opportunistic, he said.
"US funds are still a large player in the Irish market, and what's positive is that Irish institutional investors such as Irish Life, IPUT, the Reits are all very much in there as well.
"But they've been joined by European funds, the French funds, but in particular German funds who are very keen to gain further exposure to the Irish real estate market," Mawe said.
On the attractiveness of Ireland's current tax structures
William Fogarty, a tax partner in Maples & Calder, noted data recently produced by Allsop and CBRE which showed that foreign investors account for three out of every four trades where the value exceeds €1m.
He said: "Once you get to that point, people invest a lot of time in managing their structures. Non-resident institutional funds will typically use something like a Luxembourg company, a domestically-focused company or a QIAIF."
Highlighting the scale of foreign investment, he added: "There's at least 60 property QIAIFs, some of which are comparable in size, if not larger than some of the Reits. So you've got a huge institutional base which is using a regulated property fund to buy Irish property.
"It is exempt from tax; that isn't a secret. That is the model that people have been using. It's been used for over 20 years."
On the potential impact of changes to the current tax structures
On this, Fogarty said: "One of the reasons we're here is to talk about political uncertainty with regard to Brexit.
"In the last three months, there has been a lot more political uncertainty about our tax regime - and right now sitting in my office, there are five deals that are in suspended animation until Budget day.
"There's €100m of deals that were cancelled or stalled the week the Government said 'we're going to review the taxation treatment of funds. We have to manage and be sensitive to the fact that we don't create our own political risk here, because that will impact the market."
But what of the argument that these investors should pay more tax?
Fogarty said: "Nobody doubts that the Government is perfectly entitled to change the rates. But we do have to respect the fact that people have shovels in the ground, they have projects ongoing, and they have bank lending gone into them. To change the rules right now, given that we're here to talk about political uncertainty, seems to me to be a slightly short-sighted thing."
On the financial viability of residential development
Hibernia Reit CEO Kevin Nowlan was clear that his company would not build residential units if the numbers didn't stack up.
He said: "This is simple maths. How much rent do I get for every square foot that I have to build and you need to attract my capital; it needs to be between 6pc and 7pc yield on cost. That's it. It's really simple and at the moment it's around 4.5pc to 5pc [yield on cost]. That's the equation."
So how does the State address the shortage in housing supply?
Shane Whelan, director of development at Ronan Group Real Estate, believes the public private partnership model (PPP) model which he said had worked with the Convention Centre at Spencer Dock in Dublin's docklands should be explored as an option.
He said: "It was a worthwhile interaction between the State and private developer whereby the State now has a 'best in class' convention centre where it effectively guaranteed the rent to the developer for 25 years, the developer went and got the third party finance to build it, deliver it, took the guaranteed rent from the State and then the State gets the asset back at the end of the period.
"In its simplest form, there's no reason why that shouldn't be looked at to solve the residential [crisis]."
Asked how the PPP model could be used when politicians still seemed to afraid to be seen engaging with developers, Whelan said: "You can't have a situation where the political class don't want to be seen to engage with the 'big, bad developer'. You have to engage or else you don't get the stock delivered."
Could the Government make any changes to taxation that might stimulate residential development?
On this, William Fogarty of Maples & Calder, said: "We do have some issues that should be looked at as part of a broader review. The UK doesn't tax non-residents on investment gains. If you want to target somebody who will build a block comparable to the block they built in Canary Wharf, you might look at that.
"The second issue is the Capital Gains Tax (CGT) exemption that was brought in in 2012/2013 to allow people to buy land, hold it for seven years and not pay any tax on its sale. That was brought in to incentivise the market.
"We're in the bizarre place where people have bought land and instead of putting it to good use by selling it for it to be developed, they're sitting there waiting until January 1, 2019, before they'll release the land to the market. There are people hoarding land because that's what the Government told them to do."
The private sector's potential role in the delivery of social housing
Senior real estate analyst at Goodbody, Colm Lauder, believes the model used by the UK and Netherlands could work here.
Outlining how the system operates, he said: "Someone comes along and builds 100 apartments, they come to an agreement with the housing association or the local authority and they guarantee a set rent so the investor gets their return.
"That's then topped up by the housing association and everyone comes away with a decent return."
Lauder said the Dutch model had seen returns "close to double digits consistently for a number of years" while the UK model was delivering returns of 7pc to 8pc a year. He said he believed there would be an appetite for a similar scheme in Ireland from domestic institutions and pension funds.
He said: "If they see a 20 to 30-year lease which the housing associations do arrange, and a 7pc or 8pc [return] regardless of the [economic] cycle, it's a very attractive prospect to be in.
"Bringing in the private sector, looking at this long-term return, relatively safe return basis, it could be a very efficient way to deliver returns, deliver properties, deliver homes without encumbering the taxpayer."
The suitability of Ireland's local authority structures and planning rules
Hibernia Reit CEO Kevin Nowlan was highly critical of the current set-up in Dublin. He said: "When I reflect on the way our local authorities are run, I have to say there has to be a better way. For a city the size of Dublin to have four local authorities is mad; it's insane. There should be only one. If you think about it, our local government and central government are at polar opposites. The local authority managements have very difficult jobs in a sense that they're trying to get something done and they have to report to the elected councillors."
Development director at Ronan Group Real Estate (RGRE) Shane Whelan meanwhile voiced his concern at the constraints imposed by five-year development plans. He said: "Local authorities have development plans which cover a five-year minimum period, and once that's locked in, you stick to that or take your chances with An Bord Pleanala (ABP), which is not a lottery, but not far off it."
Referring to RGRE's recent experience in securing planning approval from ABP for its site at the front of AIB's Bankcentre headquarters in Ballsbridge, he said: "We spent a year with Dublin City Council in consultation and refining a design on a property which we got a really robust [planning] perrmission on. We went to the Bord and got out the far side. But you're talking an 18-month minimum by the time you get out the far side."
The banks' attitude to property development
Head of property lending at AIB, Derek O'Shea, admitted that in certain cases, money could not be made from lending to the property sector.
He said: "It's true. There are some schemes where money can't be made and our role is to work with our customers to understand the industry, to understand what our customers are trying to do, to understand when a scheme is viable and can be supported, and to support it."