STAMP DUTY:The Government has thrown a lifeline to the ailing property market by introducing significant changes to stamp duty and mortgage interest relief.
The changes will result in a stamp duty saving of €10,750 on a typical second-hand house valued at €400,000.
A house costing €650,000 will show a saving of €21,750 while purchasers of a €1 million house will benefit to the tune of €28,750.
The biggest savings will be made on houses selling above €650,000. The changes are clearly aimed at the middle market which has been stagnant for the last year, with buyers waiting for prices to fall and for stamp duty reform.
Under the new simplified regime, the first €125,000 of a housing transaction will be exempt from duty. The remainder of the balance of the purchase price up to €1 million will be charged at a flat rate of 7 per cent while the excess of the purchase price over €1 million will be charged at a flat rate of 9 per cent. First-time buyers will remain exempt under the new regime.
The Minister for Finance also increased the ceiling on mortgage interest relief for first-time buyers by €2,000 for a single person and €4,000 for a married couple. This will give single people an extra €33 per month in their pocket, and double that for married couples. The concession will go some way to offsetting the effects of the sharp increases in mortgage interest rates over the past two years.
Buyers who plan to rent out a room will benefit following the decision of the Minister to increase the rent-a-room tax relief scheme from €7,620 to €10,000.
Tenants are also set to benefit from the Budget with an 11 per cent increase in income tax relief on rent payments.
The Minister also announced an important change for young buyers hoping to relocate and rent out their new homes. Up to now, there was a clawback of the stamp duty exemption if a property was rented out within five years. This has now been reduced to two years, to reflect the increased mobility of young people.
The reforms have been broadly welcomed by the property industry.
Tom Parlon, Construction Industry Federation (CIF) director general and former government colleague of Mr Cowen, described the reforms as "positive" and said they should "help to reactivate transactions" and help keep investment in Ireland.
"The housing market has stagnated over the past year and in this market people were unwilling to pay the existing penal rates of stamp duty for moving home," he said.
The CIF, however, expressed disappointment that stamp duty reform was not extended to commercial transactions.
"Last year, Irish people invested over €12 billion in commercial property but just €1.5 billion of that was invested domestically. The 9 per cent top rate of stamp duty was a major factor in this, particularly given that transaction costs are significantly lower elsewhere," he said.
Marian Finnegan, chief economist at Sherry FitzGerald, described the changes as "good news for the property market". The penal rate of stamp duty applicable in the second-hand market had for too long acted as a barrier to entry into the established property market and was in effect a tax on mobility, she said.
"This is excellent news for purchasers and vendors alike as it will allow greater mobility in the market, thereby speeding up the sales process. The value of an average property in Dublin currently stands at €473,749. Under the old stamp duty regime, a purchaser paid €35,531 in stamp duty. Following today's announcement the new stamp duty liability on this property will be €24,412, reflecting a saving of €11,119. This effectively means a 31 per cent reduction."
Fintan McNamara, chief executive of the Institute of Professional Auctioneers and Valuers (IPAV), said the "changes were a positive move in the right direction", which would hopefully "generate activity in the current flagging market".
Estate agents CB Richard Ellis predicted that the stamp duty reform would "reignite activity in the Irish housing market and boost the Government's tax receipts".
The reforms come more than 12 months after Michael McDowell first raised the prospect of changes in the stamp duty regime. That suggestion triggered an immediate slowdown in the property market. It remains to be seen if the new measures will restore confidence.