The Return of Property Tax Incentives
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Ireland is different
Look at all the immigration, they need rentals
God is not creating any more land
Worst that will happen is a soft landing
Disagree? Bertie had a suggestion for you, go find a rope
And in twenty years we'll repeat it all over again
What are the incentives and why are they wrong in the current climate?
If we flog the builing industry into the ground for a generation we actually will end up with the same frantic activity following years of under supply that we had before.
In short (this is not a discussion on price) we need to differentiate sustainable activity (and sustainable tax revenues from that activity) from the previous madness and encourage it.
People quickly forget that this state was blighted with chronic under supply of adequate housing for most of its existence which created the damaging pschye of owning at all costs. It would be an equally damaging national pschye to discourage any form of property market activity for a generation.
There is a 6% stamp duty on commercial property purchases that is generating nothing beacuse no one is buying property. A 2% rate and some transactions would be far superior, it doesn't mean we'll go on a building orgy but it just might attract someone foreign multinationals or encourage indiginous expansion.
There is nothing inherently wrong with encouraging the use of some of the property overhang that is currently lying idle. We've built these things at a huge cost. Anything that salvages something out of this already sunk cost cannot be bad.
If we flog the builing industry into the ground for a generation we actually will end up with the same frantic activity following years of under supply that we had before.
In short (this is not a discussion on price) we need to differentiate sustainable activity (and sustainable tax revenues from that activity) from the previous madness and encourage it.
People quickly forget that this state was blighted with chronic under supply of adequate housing for most of its existence which created the damaging pschye of owning at all costs. It would be an equally damaging national pschye to discourage any form of property market activity for a generation.
There is a 6% stamp duty on commercial property purchases that is generating nothing beacuse no one is buying property. A 2% rate and some transactions would be far superior, it doesn't mean we'll go on a building orgy but it just might attract someone foreign multinationals or encourage indiginous expansion.
There is nothing inherently wrong with encouraging the use of some of the property overhang that is currently lying idle. We've built these things at a huge cost. Anything that salvages something out of this already sunk cost cannot be bad.
Would it not be better to see money and investment targetting both export led and tourism companies that bring money into the country rather than to something that adds no value at all and simlpy ties up capital?
But what is the net effect of these moves?
Surely bringing in foreign investment is of value?
Exactly...if the government wants to interfere in the market, surely it would be better if it offered incentives to companies who export and those involved in tourism (both of which bring money into the country) rather than incentivising property purchasing (which just ties up capital in bricks and mortar).
Where's the evidence you have to support the argument that this is going to cost money that could have been spent elsewhere?
As with much in taxation, an incentive like this will have a return. The direct cost is estimated at €64M for 2012, but how much will the Government gain on sales of assets held by NAMA that would otherwise remain unsold. How much will they gain from commercial rates on buildings that would otherwise have been unoccupied? Tax on salaries on jobs created as a result, etc., etc..
In the grand scheme of things, €64M isn't much.
As with much in taxation, an incentive like this will have a return. The direct cost is estimated at €64M for 2012, but how much will the Government gain on sales of assets held by NAMA that would otherwise remain unsold. How much will they gain from commercial rates on buildings that would otherwise have been unoccupied? Tax on salaries on jobs created as a result, etc., etc..
In the grand scheme of things, €64M isn't much.
For evidence all we have to look at is what happened on a grand scale for the past decade where we had such property incentives.....everything went into property and we forgot how to make stuff that actually sells (excluding some firms and multinationals).
I agree though, that there may be a return for the government, but as money is a scarce resource, incentivising it's allocation into purchasing property will result in less money going towards other things.
I agree that 64m is not a lot in the grand scheme of things but (and I'm not even sure if this is allowed by Europe) for the same cost the government could pay return flights for 128,000 Americans (500 euro per ticket) to come over here for free. I think this would have a much better boost in a very short time to our economy. In fact, if this was allowed, we could replace Bord Failte with something as simple as this.
When you have scarce resources and put property developers ahead of post grad students & those in fuel poverty - it is very telling of FG/Labour.
Yeah, I was playing devil's advocate just a little there
Agreed, previous incentives were ill-advised. Look at how many hotels are now struggling or being run by banks or Nama just to comply with the requirements of the incentives they received. That in turn is also hurting hotels who didn't take advantage of the tax breaks available.
I don't think any of the incentives announced will result in any more building. Nama were a driving force behind these moves, and their being able to shift the commercial property on their books will result in significant return to the public purse. So this one might actually result in a net positive flow.
Agreed, previous incentives were ill-advised. Look at how many hotels are now struggling or being run by banks or Nama just to comply with the requirements of the incentives they received. That in turn is also hurting hotels who didn't take advantage of the tax breaks available.
I don't think any of the incentives announced will result in any more building. Nama were a driving force behind these moves, and their being able to shift the commercial property on their books will result in significant return to the public purse. So this one might actually result in a net positive flow.
What's so special about post grads? For God sake if you haven't had the state pay enough towards your education by the time you're 22 you may as well throw your hat at it.
As for property incentives vs disincentives:
Point 1:
There's not too many property developers left in business. We, the owners of NAMA, are the biggest property developers going these days. So getting transactions in the market will benefit us financially.
Point 2:
On balance the disincentives in the market are huge. Sentiment is terrible and credit is non-existent.
Point 3:
Whilst taxation incentives certainly promoted building well beyond what was required you have to agree that stamp duty rates through the boom (9% on residential property in excess of €635k for example) should have been a huge disincentive to transactions. Unfortunately cheap credit drowned out any element of price consciousness.
Point 4:
The problem in the boom was that the default position of 'you cannot build enough or own enough property' was held long after it ceased to be sensible. The equivalent braindead mantra now would be to hold the view that 'property is toxic and will always be toxic' long beyond the point where we need to start investing effort into it again.
Point 5:
It is sensible for now to continue to build 25% of the long term required average units for a few more years. The overhang built up through a 3/4 years of building 300% of the required output means this is sensible. But in 5/6 years time we will have to start building at long term levels again. Right now we should be encouraging the people who would have purchased in normal conditions (young couples, families, etc) to take advantage of the unoccupied overhang.
In short, property should be treated as any other commodity, there is a sensible and sustainable level of consumption. If there is overconsumption then it should be discouraged. If there is underconsumption we need to provide incentives and not "punish" the property market by consistently discouraging or even barring people from even considering owning a home for themselves.
The legacy of the property bust should not be to stigmatise home ownership. That is a long term solution to nothing.
I am guessing because he is one!
Simple answer is 'No'. It's all back to property obsession and increasing levels of debt rather than reducing a level of debt that is out of control.
Firefly is absolutely right. This will end up tying up very scarce resources (money) in totally unproductive assets (property). It will reduce the capital available to viable firms that are exporting and bringing money into the country. Very dumb idea.
God is not creating any more land
Actually (s)he is, I believe the Galapagos Islands are growing.
So how much is it taking off the table?
Yeah, but if someone buys property doesn't it free up capital for the person selling it?
In particular if Google buys an office block from NAMA that surely increases capital and decreases the housing stock owned by NAMA (and therefore us!).
Less unproductive housing stock, more capital - Win win surely?
If the property is bought by foreigners bringing money into the country then yes, there will be a capital inflow. But the majority of property transactions are done by Irish residents using mortgages. This means that more credit is tied in property (again) and less is available for productive businesses.
Only if the property does not already exist. Otherwise, for each person that ties their money up in property, another will enjoy a release of capital.
Committing new capital to building housing/commercial property is obviously dumb whilst we have an overhang. Moving ownership of existing property from someone who's not putting it to any economic use to someone who is, with a transfer of capital in the opposite direction, is not a bad thing for the economy.