Stamp Duty Debate

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auto320

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Just been giving some thought to the debate on whether or not Minister Cowen will tinker with stamp duty limits in the budget in December.

The entire real estate industry in ireland seems to be of the one mind on this, that the market is in stagnation because of the "wait and see" attitude of buyers. There is no doubt that sales have slowed considerably, whether or not this is caused by uncertainty in the stamp duty field is anybody's guess.

However, what if he makes the necessary adjustments to the stamp duty limits as per the not-so-subtle lobbying of the real estate industry, and sales don't pick up immediately? Nobody seems to have thought of this scenario, but they should consider it. If the market reacts in this way, we may well be facing a huge slide as panic sets in, with the potential to wipe up to 50% off values in a matter of months.

Not possible? Oh yes it is, and all the factors are in place for such a slide to happen. If the market does not pick up quickly post-budget, even with no adjustment to stamp duty, we will have some serious do-do on the fan blades.

Just thought I'd mention it!
 
Are you missing my point, not covered in previous threads?

Essentially what I am trying to point out is this.....

A cut in stamp duty is being hailed as the cure for the current stagnation in sales.

What if Cowen makes such a cut, and the market doesn't pick up straight away?

Even if he doesn't make a cut, that will at least put an end to the uncertainty, and the market should pick up. So what if it doesn't?

At that point I would suggest that we have a problem.

Just pointing it out, nobody seems to have thought this thing through beyond the budget, all commentators have just assumed that everything will pick up agian ince the uncertainty is taken away.
 
It seems strange to me that the "wait and see' attitude is only on the buyers side of the equation.

There is plenty of property for sale so sellers don't seem to think that there will be changes in the budget otherwise they would wait until next year to sell, all things being equal they would get a better price if there was a stamp duty reduction.
 
Whilst i can't comment on the effect on the current confusion of stamp duty on the property market i can say with reasonable certainty that the rates will not change in this budget.
 
auto320 said:
The entire real estate industry in ireland seems to be of the one mind on this, that the market is in stagnation because of the "wait and see" attitude of buyers. There is no doubt that sales have slowed considerably, whether or not this is caused by uncertainty in the stamp duty field is anybody's guess.
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I think that blaming the current stagnation on possible changes in the budget is a red herring. This did not happen last year or most of the previous 10 years for that matter.

The daft report related to Q2 of this year was able to show that a slowdown has been happening since the end of April. Conveniently this is about 5 months after the ECB started raising interest rates and IMHO is a much more realistic reason for what is currently happening.

You're quite right in pointing out that if there is not a pick up after the Budget then there really are not much more excuses left. It would be undeniable that there is a major shift happening in the market.
 
sandymount said:
It seems strange to me that the "wait and see' attitude is only on the buyers side of the equation.

There is plenty of property for sale so sellers don't seem to think that there will be changes in the budget otherwise they would wait until next year to sell, all things being equal they would get a better price if there was a stamp duty reduction.
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That's exactly my point. It's symptomatic of an industry where most people rely on the property pages for information, perhaps unaware of how these commentators continue to talk up a market that has maybe already turned sharply. In my own view, the market has already gone into reverse, but most people haven't noticed yet and they are waiting for a miracle to happen post budget.

It is my belief that as soon as it is noticed that the budget hasn't provided any impetus to the market, the penny will start to drop and more and more properties become available. Supply/demand will result in a steep drop in prices on the second-hand market, and panic will start to set in. The next mindset will be that of small investors who bought a few years back; they will convince themselves that as long as they get anything over what they paid for the property, they are better off, so discounting will follow. The next step from these sellers is to decide that if they get anything over and above what's left on the the mortgage, they are ok, so potential for more panic.

I don't want to be a prophet of doom, but somebody needs to counteract the hype from the property "journalists" who continue to talk up the interests of their advertisers.
 
phoenix_n said:
Whilst i can't comment on the effect on the current confusion of stamp duty on the property market i can say with reasonable certainty that the rates will not change in this budget.
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How come? Are you in the Dept of FInance?

Roy
 
I think that FF are going to be forced into stamp duty reform by the PDs and more importantly the general public. The government aren't stupid. They know that reducing stamp duty will probably lead to a surge in property sales in the new year. Of course all the other factors will still be there - supply, demand, interest rates etc. But a reduction in stamp duty will create enough of a splurge to keep things going onto the general election. Of course this will just be temporary.

I very much doubt that sufficient stamp duty reform will not lead to an increase in sales. This is bound to happen. I agree however that the wait and see approach is a bit of a red herring, although I think that it has caused more of a dramatic slowdown than one might have expected.
 
It's not hard to find houses where the asking price has been reduced by an amount similiar to stamp duty due - and the house still hasn't sold.

I'm not convinced that stamp duty adjustment will provide the boost in sales and prices that the VIs are hoping for.

It's true that last time it did but at that point it was throwing fuel on a fire, this time round it could be the "sentiment" fire has gone out and it won't make much difference.
 
southsideboy said:
I think that FF are going to be forced into stamp duty reform by the PDs and more importantly the general public. The government aren't stupid. They know that reducing stamp duty will probably lead to a surge in property sales in the new year. Of course all the other factors will still be there - supply, demand, interest rates etc.
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The housing market is not going to be controlled by any tampering that Cowen does. It will remain at risk of dropping sharply or slowly. If he was to make a change and there was a subsequent surge in prices followed by a crash in a year or so - Cowen would be remembered as the Minister who caused the crash. The beast is best left to it's own devices now and I think from his recent statements Cowen knows this.
 
sandymount said:
It seems strange to me that the "wait and see' attitude is only on the buyers side of the equation.

There is plenty of property for sale so sellers don't seem to think that there will be changes in the budget otherwise they would wait until next year to sell, all things being equal they would get a better price if there was a stamp duty reduction.
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I think that we are seeing a two-fold effect, a) a serious slowdown in the market and b) on top of this we now have a wait and see effect following McDowell's comments.

Who the hell is going to close on a €500,000 house this month when they could save a chunk of the €45,000 stamp duty bill by waiting till after the budget? Even if house prices have been discounted this scenario still remains the same.

Of course the sellers are not adopting a wait and see approach on stamp duty, why would they?

Most sellers accept that their property will not sell before the budget, but viewings are still happening and sellers are now jockeying for position in the hope of exiting the market in the early months of the New Year at current price levels.

In any case I would concur with Abbeykiller's view that Cowen's recent statements suggest that he is not going to tinker with the property market by way of stamp duty changes.

However given the Election next year the pressure on him will be intense.

As I see it, if stamp duty is reduced or abolised in the budget the market will be sustained for 6 to 9 months at best.

If no changes in stamp duty are made, the stand off will continue until the end of March and then the market will plumet.
 
Mr. Cowen is not as adamant about stamp duty reductions as he was. Now he says he refuses to be drawn on the matter, while he had insisted there would be no change. Public perception seems to be that the poor FTB is crippled with stamp duty payments on top of already over priced homes. In fact, out of the approx. 3 billion collected in stamp duty last year, only 70 million was paid by first time buyers. Given this, it might not go too badly for FF if they abolish stamp duty completely for first time buyers. They get the kudos attached to making homes more affordable for young people and yet, in the grand scheme of things, it's comparatively cheap for them.

Should they decide to abolish stamp duty for FTBs it might give the secondhand market a chance against the new builds. That is of course if all in sundry don't get too greedy and in the process shoot themselves in the foot. If reductions are made across the board it would probably give the market another boost, at least for a while. Personally, I agree with Abbeykiller that no tinkering with stamp duty should take place. More than likely the outcome would be the same as in the past, price surges which definitely cannot be sustained this time.
 
liteweight said:
Should they decide to abolish stamp duty for FTBs it might give the secondhand market a chance against the new builds.
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As you've said yourself the whole FTB stampduty "issue" is just a smokescreen as they contribute relatively little to stampduty revenues.
The only thing that will possibly prevent stagnation in the secondhand market is something done for owner occupiers of secondhand properties as these are the people who get hit the worst.The trader uppers if you will, there's a lot of people out there who bought apartments in the last few years who are probably looking to move into houses in the future, stampduty for owner occupiers of secondhand properties acts as a very heavy barrier against this.
 
I think that Cowen has a choice. He can either make significant changes to stamp duty which would increase the chance of a crash in the medium term as it would probably result in more price increases for probably another 12months or he can do nothing and let prices continue to drop as the housing inventory increases... I think he'll choose the first option...he'll probably adjust the bands a good bit, particularly for first time buyers. If he doesn't do this, buyers will not return to the market as some commentators have been predicating. Instead there will be an anti-climax and prices may drop further. I personally don't believe there will be a 'crash'. I'd say prices will have levelled off by the end of 2007 but coming up to the elections in mid 2007, Cowen will want a feel good factor about property.
 
In the past, I think that increases in the stamp duty bands were able to affect the price of houses only because the banks were willing to stretch out the conditions and amounts being lent (up to around 7 times a couples salary). Currently though the banks are being warned left right and centre to tighten up their lending and every increase in interest rates automatically restricts the amount they can lend anyways.
Am I missing something here but how will an increase in the the stamp duty bands make any difference to the market if many have already ran into the wall of affordability?
 
Cowen, this afternoon, continues in his emphatic use of words and phrases like

'prudent'
'fiscally sustainable'
'economically appropriate'
'politically responsible'

Giving a boost to the property market at this point in time would seem to violate all these terms. I don't think he'll do it.
 
Remix said:
Cowen, this afternoon, continues in his emphatic use of words and phrases like

'prudent'
'fiscally sustainable'
'economically appropriate'
'politically responsible'

Giving a boost to the property market at this point in time would seem to violate all these terms. I don't think he'll do it.
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Of course he won't.

Even the sunday times knows that.
 
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