Government measures introduced on the recommendation of the Bacon Report in April cast a pall of gloom over the residential property investment market. Aimed at easing the difficulties being experienced by first-time buyers faced with meteoric price increases, Peter Bacon's report introduced a strong deterrent for investors.
In the case of the rental income, the interest on monies borrowed for investment in residential property on or after April 23rd, 1998, were not allowed as a deduction for tax purposes. In a further squeeze on investors, Stamp Duty was introduced on new houses and apartments for non-owner occupiers.
As forecast, the measures prompted an exodus of investors from the residential sector. With the tax incentives removed, there appeared little reason for investors to continue buying apartments and other newly-built property.
However, although first-time buyers have begun to feel the benefits of the Government measures, auctioneers say that investors have not abandoned the residential market.
"Bacon has cooled the situation and led to a more ordered market. But investors are coming back into the market," says Frank Doonan, managing director of Gunne auctioneers.
The first-time buyers whom the Bacon Report set out to help have started seeing the effects of the measures, although the cooling of the market took time, according to Simon Ensor, of Sherry FitzGerald.
"The effects of the Bacon Report were not felt until the autumn. When the measures were first introduced in April, the short-term effect was to inject further stimulus into the market, because of the reduction in stamp duty," he says. "The cooling effect took longer to filter through, but it was being felt very definitely in the autumn, when investors were not there to take up the slack, so, in effect, the market was over-supplied."
According to Tom Day of Lisney, the Bacon Report has put a great many investors out of the market, making it harder for developers to sell housing and apartment schemes that would previously have sold out in a matter of hours.
"Builders are beginning to realise that they will not achieve the prices they were getting prior to the Bacon measures and will not sell out their developments as quickly," he says.
Ken MacDonald, of Hooke & MacDonald estate agents, agrees that the Government measures have assisted in the cooling down of house prices, particularly in suburban areas, and have been "extremely helpful" to first-time buyers. The irony is, however, that many young couples still do not meet the Central Bank's criteria for mortgages, he said.
Despite a calming of the residential market and the disappearance of large numbers of investors, homes remain beyond their reach.
"A person earning £20,000 can still only borrow £50,000, although their ability to repay would allow them to repay rents much higher than a mortgage," he says. "They can afford the mortgage due to falling interest rates, but are being disallowed mortgages. It is a Catch 22 situation for them and that needs to be addressed."
Rents have also risen sharply since the Bacon Report was published in April and they are likely to continue to rise as fewer homes are made available for rent.
According to Mr MacDonald, the removal of the deduction of rental income against interest was an unnecessary constraint imposed by the report and its re-instatement is now needed in order to refuel the supply of rented accommodation.
"If the supply of the sale market is corrected and people get access to houses to buy, then the Government will be able to address the problems emerging in the rental sector," he says.
