The cost of buying a second-hand home has been reduced following the Government's decision to cut stamp duty on all homes under £500,000.
Other measures contained in the Government action plan on house prices announced yesterday are expected to help to calm the market, since buying residential property for investment has been made much less attractive. The Government's decision to abolish tax relief on money borrowed to buy houses and apartments for renting out to tenants has been strongly criticised by interest groups in the property industry.
The abolition of the tax relief applies only to homes bought after the Government's announcement - investors who are already entitled to the relief will keep it.
Housebuilders and estate agents claim that investors, who have been buying up to 80 per cent of apartments in some Dublin schemes during the past year, will be put off investing in residential property by several elements in the government's package - the ending of the tax relief and Section 23 restrictions.
"It is investors' price expectations which are driving the market," Dr Peter Bacon, commented yesterday.
People buying second-hand houses will benefit immediately from the cuts in stamp duty. Second-hand homes costing under £60,000 will no longer be subject to any stamp duty, although few will gain since there are not many homes left in this price bracket. The rate for second-hand homes worth between £60,001 and £100,000 has been halved to 3 per cent - a saving of £3,000 on a £100,000 house. Other cuts in stamp duty have been introduced on all second-hand homes up to £500,000.
According to Dr Bacon, people's ability to afford ever rising prices would have continued to deteriorate significantly without Government action. "We hope that prices may be able to be held around this year's levels and there will be no downturn given the strong fundamentals underlying the market."
The rules on stamp duty on newly-built homes have been changed. Up to now, there was no stamp duty on most new homes, irrespective of whether the buyer was an owner-occupier or an investor. From now on, only owner-occupiers will benefit.
Other measures announced by the Government are designed to increase the supply of land through further capital gains tax cuts and an integrated planning system for Dublin and the east coast as well as increasing densities in some areas.
Contrary to some expectations, the report recommends no additional lands over and above those already zoned or proposed for zoning should be brought forward, pending the completion of a strategic land-use study of the greater Dublin area.
In addition, developers will be asked to contribute towards basic services through public-private partnerships while builders will be asked to follow a voluntary code to stop phased releases and gazumping. Minister for the Environment, Mr Dempsey, warned if this did not work he would have no hesitation to introduce legislation.
The measures received a mixed welcome. According to Mr Gerald Hurley, marketing director for McInerney Construction, the net effect of the stamp duty changes will be to give more to the vendor, less to the Revenue and make no difference to the buyer as prices will simply be increased to compensate.
The Construction Industry Federation called the package "unbalanced" and warned the measures targeting investors will mean higher rents. The Irish Home Builders Association, which described the changes as "a black day for housebuilders", has called an emergency meeting of its members today to decide on what action to take.
The Irish Auctioneers and Valuers Institute broadly welcomed the report, but also attacked the abolition of mortgage interest relief for future purchases. "This will cause future tenants and not landlords to suffer."
Mr Ken MacDonald, of agents Hooke & MacDonald, who specialise in the new homes market, has described the changes as "draconian" and predicted that apartment rents in Dublin will double within 18 months.