Colliers International Budget 2012 16.12.2011Last week in its 2012 budget, the Irish Government announced a variety of property related measures, the principal aspects of which were as follows: Stamp Duty Stamp duty for non-residential property is now a flat rate of 2%, as opposed to a previous sliding scale of up to 6% (on properties over €80,000). This is a dramatic reduction in transaction costs. Moreover the new rate will also apply to farmland. Capital Gains Tax (CGT) Any gains from properties bought between 7/11/11 and 31/12/13 will be CGT exempt if held for 7 years or more. This 100% relief is for the gain during the 7 year period only however. Disappointingly in the fine print of this announcement it appears that the CGT exemption would only be available to properties (residential or commercial) that had been “previously acquired at the peak of the market in the middle of the last decade, 2005 to 2008” and was sold to a new owner between now and 2013. This particular nuance seems to have escaped the notice of many commentators thus far, and we are aware that the Government is presently being lobbied hard to remove this qualification which greatly restricts the apparent benefit of the relief. Upwards Only Rent Reviews (UORRs) The much mooted proposed legislation to impose retrospective rent reviews into existing leases has been dropped. It would appear that the decision for this was a combination of the question of the constitutionality of such a move and that (even if it were to pass a constitutional test) those parties that would have suffered (landlords/ institutions/ funders etc.) might have been able to claim compensation from the Government. This point was also made by NAMA in its role as (effectively) the largest owner of property in the State. Separately NAMA has now issued a guidance note for distressed tenants in relation to the process for the assessment of a proposal for a reduction of rent in an “upwards only” commercial lease where NAMA (through a debtor/receiver) is in effect the controller of the property. Notably this particular guidance note would appear to rule out any forbearance for larger companies making profits elsewhere (either inside or outside the State) even though they might hold individual leases which are loss making. This move is also likely to have a positive effect on many valuations carried out over the past year, which would have factored in a degree of risk of this legislation being enacted, with such risk now removed. Mortgage Interest Relief Mortgage interest relief is increased 30% for first time buyers who took out their first mortgage in 2004-2008. This relief period will run from 2012-2017 and from 2018 onwards all mortgage interest relief will be abolished. VAT The standard rate of 21% has been increased 23% from 01/01/2012. Ireland will be the 20th EU member to raise the standard VAT rate in the last 4 years. As one of Ireland’s foremost property consultancies, Colliers International welcomes the range of initiatives (other than the VAT hike above) in the recent budget and in particular the removal of the uncertainty in relation to UORRs. This has effectively stagnated the investment market in Ireland for the past 12/18 months, and has been a very significant deterrent for Irish and International Investors. The removal of this uncertainty, combined with the CGT Relief and reduced Stamp Duty will make investment conditions far more attractive than previously. However, these alone will not be enough to kick start the market which is still in dire need of mortgage finance in this regard. It is interesting to note that for the first time ever NAMA has indicated that it is prepared to grant staple (vendor) finance in relation to the disposal of No.1 Warrington Place, a 55,000 sq. ft. office building leased to Bord Gais. We expect to see more of this in the future.