Government measures announced last year favouring owner-occupiers over landlords and purchasers of second homes are to be modified, the Minister for Finance, Mr McCreevy, said yesterday.
Stamp duty for investors buying new residential property will be cut from a flat rate of 9 per cent to a sliding scale beginning at 3 per cent and reaching 9 per cent at £500,000. The investor rate for second-hand properties remains a flat 9 per cent.
The 2 per cent anti-speculation property tax, to have been effected in April, will not now be introduced.
In the Dail, Mr McCreevy said that in introducing "a stamp duty rate of 9 per cent and the 2 per cent anti-speculation property tax last summer, the Government undertook to keep the matter under review".
The Government considered the reduced stamp duty rate for investors in new residential property would "provide an incentive for increasing supply in the new build rented sector, while leaving the relative position of owner-occupiers and investors in the second-hand market unaffected".
"In this context, it should be noted that approximately two-thirds of first-time buyers buy second-hand houses. This stamp duty change will also increase the attractiveness of tax incentives for student accommodation which are new build."
Regarding the anti-speculation property tax, Mr McCreevy said that, in the light of developments in the housing market since last summer: "The Government does not consider it necessary to go ahead with this measure, which would, in any event, have applied in practice to a very limited category of investors."
The 9 per cent flat rate for investors was a measure introduced by the Government following the third Bacon report, although it was not recommended in that report. The report suggested a sliding scale similar to the one now being introduced for new properties.
The Labour Party's finance spokesman, Mr Derek McDowell, said it was obvious the Minister had been convinced by property developers and estate agents to change his mind. He said the measures should have been allowed operate for a year or two to see if they would skew the market in favour of first-time buyers.
"Has the minister decided that the market is okay now for first-time buyers?" Mr McDowell asked. "Presumably not, so what is he proposing?"
Mr McDowell could not understand why investors were not buying new apartments in Dublin when they could rent them out for up to £1,000 a month.
Mr John Fitzgerald, research professor at the ESRI, said the anti-speculative tax was aimed at freeing up the resources of the building industry for the construction of dwellings where people would live full-time. The purchase of second homes were causing difficulties in some popular parts of the West, where locals were finding it difficult to compete in price.
On the changes in stamp duty, he said it was a complex area and he wanted to study the new measures before commenting. "It is important that people invest in the rental market."
Investors in the rental market have been particularly aggrieved by the decision that rental income could no longer be offset against mortgage repayments on a rented property. Mr McCreevy has also announced that share options granted before February 15th, 2001 but not exercised at that date will now be allowed benefit from the new tax scheme outlined in the Finance Bill.
