Paying CAT is something that will have to be addressed at some stage if they don't qualify for dwelling relief. Assuming the property appreciates over time and CAT doesn't increase at the same rate, they will have to pay more in the future that they will today. It is merely kicking the can down the road. They need to plan on how they are going to pay the CAT when the time comes.
Your sister can gift her daughter €400,000, each of her grandkids €40,000 and her son in law €20,000. They can also get the annual gift exemption of €3,000 each, so that's €512,000 that can be gifted tax free.
I would start by talking to a mortgage broker on what the banks will allow and not allow (they work on commission so you can see what is possible without it costing you). Then get tax and legal advice on the correct structures and pit falls. Preferably get these two advisors who know each other so they can bounce these scenarios off each other without going back to your sister to pass the message all the time.