Developers renting new homes lose exemption
CASH-strapped developers who rent out newly built apartments and houses are forfeiting the chance to ever sell the properties as "new" units with stamp duty exemptions, the Irish Independent has learned.
As developers battle to make loan repayments, renting out completed projects that aren't selling has become an increasingly popular option, with Bernard McNamara recently offering several units in his landmark Elm Park development on 12-month leases.
However, when these ex-rental properties are eventually sold, they'll be considered "second-hand", meaning stamp duty will be payable by everyone bar first-time buyers.
"It's a major problem," said Hubert Fitzpatrick, director of housing and planning services with developers' lobby group the Construction Industry Federation (CIF). "We've drawn the attention of the Department of Finance to it before and it's an issue we'll be bringing up again over the coming weeks."
The anomaly stems from the fact the stamp duty exemption for new homes is legally only triggered if they're sold immediately after erection, and not if they're sold for the first time.
"Where a dwelling house or an apartment is rented by a developer for a period of time before being sold, the purchase would not take place on the erection of the dwelling house or apartment and therefore the stamp duty exemption would not apply," the Revenue said.
However, Mr Fitzpatrick said the detail of the rule served to "penalise" developers who were trying to be responsible and service their borrowings.
"Where people have apartments in prime locations and there's rental demand for them, the reality is they're being let," he said. "The whole focus now is on cash-generation. Developers shouldn't be penalised for that when they're only doing what's in everybody's interests."
The National Asset Management Agency (NAMA), which will approve business plans for almost all of the country's developers, is understood to favour renting units to bring in cash-flow that can service debt.
A spokesman for the agency this weekend declined to be drawn on whether NAMA might join the CIF's efforts to have the stamp duty legislation tweaked in the Budget.
Mr Fitzpatrick declined to give examples of other developers who had begun renting their stock, beyond saying a "considerable number" of the CIF's members were affected by the stamp duty situation.
The situation could also impact on those trading up or down, or simply relocating.
Many homeowners who will have to move on from properties they can no longer afford have been comforted by the fact that there is a significant build-up of new homes on the market, meaning stamp duty can most likely be avoided.
That comfort will vanish if the unsold stock is rented first and loses its stamp duty exemption.