Tuesday, 7th December 2010 – Property consultants CB Richard Ellis this evening had a mixed reaction to Budget 2011 provisions announced by the Minster for Finance. While stating that the Budget is severe, CB Richard Ellis noted that it is a necessary step in order to rectify the public finances.

The property consultants were encouraged to hear the Minister state that the priorities for Government were stimulating job creation and economic growth but say that today’s Budget was in many respects a lost opportunity. CB Richard Ellis were encouraged to hear the Minister re-state the Government’s commitment to the corporate tax rate of 12.5%, which they say is critical to the retention and expansion of much-needed multinational corporations, which provide much-needed employment in the economy.

CB Richard Ellis welcomed the reduction in residential stamp duty to 1% for all residential transactions with a value up to €1 million and 2% for all transactions over €1 million, but cautioned that given current trends in the labour and mortgage markets this measure alone would not stimulate a notable recovery in residential transaction volumes. They say that the abolition of all exemptions to residential stamp duty coupled with the reduced rate goes a long way towards simplifying the residential property tax system, but it also acts to enforce stamp duty on some buyers such as first time buyers who heretofore were exempt in some circumstances. The measure will also make new homes more expensive, which is ironic considering the stock of new properties that have to be absorbed over the next few years. At the lower end of the residential market, some buyers could ironically end up paying more under the new stamp duty regime, considering that the first €125,000 of the purchase price is no longer exempt.

CB Richard Ellis say that potential house buyers will continue to be influenced by weak job security and funding difficulties in the current climate but that the new stamp duty regime is likely to stimulate some buying activity in the owner-occupier segment of the housing market in the coming year. However, they say that the new stamp duty changes will not encourage investors. They say that residential investors can certainly see value in the residential market at present but that a reduction in stamp duty will not encourage them to buy in a market where a property tax is to be introduced, where mortgage interest relief’s for investors are being curtailed and where registration fees and an annual second-homes tax (which has the potential to be increased) remain. The property consultants noted that without a clear and coherent plan for recording residential transactions, the new stamp duty regime will not necessarily lend itself to the establishment of a much-needed national property database. CB Richard Ellis encourages Government to develop a more thorough plan for development of this database. They also encouraged Government to progress a clear strategy on how the annual property tax announced in the 4 year strategy document (but not mentioned in today’s Budget) is to be implemented.

Another significant property-related impact announced in today’s Budget related to the phasing out of some capital allowance schemes and the imposition of some restrictions on the use of schemes such as Section 23. It appears that many investors who invested in schemes on the basis that they were able to utilise the tax relief’s against all income (and ultimately paid a higher price for this privilege) will now be restricted to using these relief’s against certain rental income, which is a clear change of position. It appears that many capital allowance schemes will now be accelerated forcing the investors to utilise all tax relief’s before 2014. This could have the effect of bringing some properties to the market, when investors have fully utilised the tax relief’s relating to those properties. There was a fear in some sectors of the property market that a retrospective clawback on tax relief’s might be enforced but this was not contained in today’s Budget. As a result, some non-viable properties, which investors had been avoiding closing down or selling were continuing to trade. Now that we know that relief’s already claimed will not be clawed back, today’s announcement might mean an orderly wind-down of some of these trading entities, such as hotels.

CB Richard Ellis welcomed the temporary reduction in the air travel tax from €10 to €3 saying that this measure should help boost Ireland’s ailing tourist industry and boost demand in the hotels and licensed sector of the property market.

CB Richard Ellis said that the rash of changes to income taxes, credits and levies are right in their stated aim to broaden the tax base and create a more sustainable and equitable tax system. However, given that consumer spending is yet to stage a strong recovery the measures announced today are likely to have a further negative impact on the retail sector of the commercial property market, a sector which is already severely compromised. In addition, the announced cuts to capital expenditure will of course have a further negative impact on the already-depressed construction sector, compromising its ability to contribute to economic recovery.

Patrick Koucheravy, Property Economist at CB Richard Ellis, Ireland said, “The provisions of Budget 2011 are really a mixed bag for the property market. While the stamp duty changes might encourage some activity in the owner-occupier sector of the residential property market, measures announced today will do little to increase transactional activity in the commercial property sector when unemployment remains high and any recovery seen in the economy to date is fragile at best. It is encouraging to again hear of the Government’s commitment to the 12.5% corporate tax rate, but we would like to have seen more incentives provided for job creation. While we understand the need for rectifying the public finances in line with EU agreements as part of the four-year plan, we regret that the front-loading of such a fiscal correction will likely further depress consumer demand and spending just as both were beginning to show signs of stabilisation.”

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FOR FURTHER INFORMATION CONTACT:
Patrick Koucheravy, CB Richard Ellis
patrick.koucheravy@cbre.com

About CB Richard Ellis
CB Richard Ellis Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services firm (in terms of 2009 revenue). The Company has approximately 30,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 300 offices (excluding affiliates) worldwide. CB Richard Ellis offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com

In Ireland, with offices in Dublin and Belfast, CB Richard Ellis is the country’s largest commercial real estate services company, now employing over 140 employees and offering a full range of property services including property sales and acquisitions, leasing and management, investment, corporate services, project management, consultancy, valuations and research. CB Richard Ellis Ireland has been listed among the top 50 Best Workplaces in Ireland, 2010, for the sixth year running. Please visit our website at www.cbre.ie or www.cbre.ie/ni

MAIN ELEMENTS OF BUDGET 2011
• No reduction in state pension
• €10 reduction in Child Benefit rates
• 4c on petrol, 2c on diesel from midnight
• Revised air travel tax of €3 from March on a temporary basis for 12 months to review impact on tourist numbers
• €40 payment for fuel allowance recipients
• New minimum wage recipients not in tax net
• Public service pay will not be cut
• Public sector salary capped at €250k
• Public service pensions over €12k cut 4%
• Taoiseach’s salary cut by €14k; ministers by €10k
• Next President's salary to be capped at €250,000
• Employee PRSI/health levy pension relief gone
• Income/health levies to be replaced by single universal social charge. Rates on the charge will be 0% below €4,004 a year, 2% up to €10,036, 4% from €10,036 to €16,016 and 7% above this level
• Pension contributions subject to PRSI and Universial Social Charge
• Employee PRSI contribution ceiling removed
• Increase in the PRSI rate for the self-employed, higher earning public servants and office holders
• 1% tax on residential transactions up to €1m; 2% over €1m
• All stamp duty exemptions abolished. First time buyers will now have to pay stamp duty, the first €125,000 of a transaction will attract stamp duty, properties under 125 sq metres etc. Will bring more people into the stamp duty net
• Car scrappage extended for six months to July 2011
• No change to Ireland's corporation rate confirmed again
• Value of all income tax bands and credits to be reduced by 10%
• Abolition of the Income Levy and Health Levy replaced with Universal Social Charge
• DIRT increased by 2%
• Online betting will be subject to the same betting duty as in bookie shops
• Carer's Allowance for those under 66 to be cut by €8 to €212 a week
• Disability Allowance being cut by €8 to €186 a week
• New passport fees for over 65s
• Business Expansion Scheme to be revamped in an effort to encourage investment in indigenous businesses
• 15,000 activation places for unemployed which will have to be supplemented by the private sector
• Third-level student charges are to rise by €500 to €2000
• Student grants are to be cut by 4%