Friday 24 May 2019

Government 'on the side of the cuckoos' and helping big investors 'elbow families out of housing market' – Dáil hears

Funds are blamed for outbidding first-time buyers

Stock photo: Bloomberg
Stock photo: Bloomberg

Charlie Weston and John Downing

Fine Gael has been accused of helping so-called “cuckoo funds” to buy up housing developments - making things even harder for families trying to buy their own home.

Fianna Fáil deputy leader, Dara Calleary, cited a report in Thursday’s Irish Independent which showed that another full housing development – totalling 295 houses at Leopardstown in Dublin – was bought up by an institutional investor.

Mr Calleary said last year such funds – which benefit from Government tax concessions – last year bought up 3,000 homes which they will rent at a handsome profit.  That meant 3,000 hard-working families were elbowed out of a housing market where new homes are already very scarce.

“It’s clear Fine Gael is on the side of the cuckoos in this one,” Mr Calleary said.

Dara Calleary (Niall Carson/PA)
Dara Calleary (Niall Carson/PA)

“Is it not time to shout stop and review these tax incentives being given to these funds?” the Fianna Fáil deputy leader asked.

Replying for the Government, Tánaiste Simon Coveney rejected the accusations and said Mr Calleary was mixing up a number of issues.

“We believe in house ownership and we want everybody to own their own home,” the Tánaiste insisted.

Mr Coveney said the institutional investors accounted for a very small segment of the housing rental market. He said that overall just 5pc of landlords owned over 100 units while 70pc of landlords owned just one unit.

The Tánaiste added that 1pc of sale transactions involved institutional investors.  He said that many housing developments were being ordered in advance by big investors and would not be built otherwise – so they were in fact adding to housing supply.

Mr Coveney said the Government was committed to providing more housing and a series of major programmes were now under way.

Finance Minister Paschal Donohoe. Photo: Gareth Chaney/Collins
Finance Minister Paschal Donohoe. Photo: Gareth Chaney/Collins

Mr Coveney told Sinn Féin deputy leader, Pearse Doherty, that the Central Bank was supervising the sale of loan books from the main banks to so-called “vulture funds.”  Mr Doherty said these funds were mistreating people in mortgage arrears.

Earlier, Finance Minister Paschal Donohoe defended the activities of 'cuckoo funds' buying up residential properties in blocks.

They have been blamed for pushing rents up to record levels and squeezing first-time buyers out of the market.

Mr Donohoe said the funds are the driving force behind apartment units being granted planning permission.

His comments come as around another 300 apartments in Dublin are being put up for sale as a single unit.

The flats at Clay Farm in Leopardstown in south Dublin have been designed as a build-to-rent development.

The offer comprises 295 apartments, with a guide price of €130m. It is expected to be snapped up by a so-called 'cuckoo fund'.

These have been described as 'cuckoo funds' because they snap up accommodation before individuals get a chance to purchase, in the way that cuckoos elbow fledgling birds from their nest. It is a trend that is locking many working families out of buying their own homes.

Lucrative rents are a key reason big investors will continue piling into the market.

Selling homes to big funds which then rent them out en masse has become increasingly common in this country as the housing crisis continues to spiral.

Big corporations spent more than €1.1bn buying a record 2,923 housing units in Ireland last year, blasting through previous records and cementing a radical shift in housing patterns.

Even with added supply, rents are forecast to increase by a further 17pc over the next three years in Dublin, according to new research from Savills.

The UN recently criticised the practise of selling homes to investors en masse.

In a scathing assessment of the housing market, UN special rapporteur on the right to adequate housing, Leilani Farha, wrote to the Government accusing it of facilitating the "financialisation of housing" through preferential tax laws and through weak tenant protections, among other measures. But in a Dáil reply, Mr Donohoe defended institutional investors.

He said the most up-to-date data shows their activity has been limited. "On a national level, institutional investors remain a small minority of landlords. However, such investors do play an increasingly important role in the private rented sector."

He said institutional investment is likely to be the driving force behind a recent increase in the number of apartment units granted planning permission in Dublin.

"Increased apartment building is a very positive development, both in terms of boosting overall supply and in relation to the National Planning Framework, which specifically targets more compact growth," he said in reply to a parliamentary question from Independent TD Mattie McGrath. He also defended the tax treatment of big investors. The UN claimed large funds were receiving preferential tax treatment.

Mr Donohoe said tax rules have been introduced to facilitate collective investment.

"For example, the function of the Real Estate Investment Trusts (REIT) framework is not to provide an overall tax exemption, but rather to facilitate collective investment in rental property by removing a double layer of taxation which would otherwise apply on property investment via a corporate vehicle," he said.

REITs don't pay corporation tax on their profits. But Mr Donohoe said they have to distribute 85pc of their property profits each year and a dividend withholding tax is collected on the distributions.

Fianna Fáil has demanded a review of how the 'cuckoo funds' that buy up homes for rent are taxed.

Housing spokesman Darragh O'Brien said many companies pay "effectively no tax" while securing properties that should be available for first-time buyers.

Irish Independent

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