Ireland- CBRE Reaction to Budget 2012
PROPERTY INDUSTRY REACTION TO BUDGET 2012
Broad Welcome for Confirmation of Government’s Intention Not to Proceed with Rent Review Reform
Dublin, 6th December 2011 – Property consultants CBRE this evening reacted to Budget 2012 provisions announced over the last two days. While acknowledging the difficult task facing the Irish Government in rectifying the country’s public finances, the property consultants expressed disappointment that the Budget measures are unlikely to stimulate job creation or boost economic growth to any significant degree. They were particularly critical of the decision to increase the rate of VAT from 21% to 23%, a measure they say will put further undue pressure on the retail sector of the economy. The property consultants were however encouraged to hear the Minister re-state the Government’s commitment to retaining the corporate tax rate of 12.5%, which they say is critical to the retention and expansion of multi-national corporations, who provide much needed employment in the economy.
One of the measures announced in the Budget which will have significant implications for the property sector is the reduction in the rate of stamp duty on commercial property purchases from 6% to 2% from midnight tonight. CBRE welcome this reduction saying that implementing this change at this point in the property cycle is an astute move by Government. However, CBRE say that the single most significant announcement for the property sector in today’s Budget is the announcement from Government that they will not now be proceeding with plans to retrospectively review rent review provisions in existing business leases as they had proposed in the Programme for Government. The property consultants say that the uncertainty that this proposal created has effectively stalled transactional activity in the investment sector of the Irish market for the last 12 months. Confirmation that this legislative change will now not proceed together the reduction in the rate of stamp duty on commercial property transactions will according to CBRE stabilise the commercial property sector and ensure that entities such as NAMA and banks can now start disposing of investment properties. CBRE also broadly welcomed the decision by Government to waive capital gains tax for commercial properties purchased between now and the end of 2013, another measure which they believe will help stimulate much-needed transactional activity and help stabilise values in the commercial property sector of the economy.
In commenting on the €100 household charge which is to be implemented in 2012 as a precursor to the long-promised residential property tax, CBRE say that it is imperative that the Government ensure that representatives from the property industry are involved in the expert group that Minister for the Environment, Phil Hogan is proposing will advise on the design, scope and implementation of the property tax from next year onwards. CBRE expressed surprise that residential investors who already pay a second homes charge now appear to also be liable for the €100 household charge for every property they own, not just their principal private residence. When you consider that owners of residential properties will potentially be liable for PRSI on rental income from 2013 onwards, this is a body blow to many residential investors who are already struggling with unaffordable mortgage repayments.
According to Marie Hunt, Executive Director at CBRE, Dublin, “We broadly welcome the confirmation from Government that they now no longer intend implementing retrospective legislation with regard to rent review provisions in business leases. This was clearly the single biggest obstacle to transactional activity in the investment sector of the market over the last 12 months and we are happy that this has been cleared up today. The removal of this uncertainly along with the reduction in stamp duty for commercial property and capital gains tax changes for properties purchased over the next two years will enable transactional activity to resume in this sector of the economy”.