REACTION:ESTATE AGENTS fear the struggling second-hand housing market may well grind to a halt after the disclosure that stamp duty may be abolished and replaced with an annual property tax.
The Government will be under pressure to clarify whether it plans to implement proposals by the Commission on Taxation in the December budget, having already signalled that it it may not proceed with the property tax.
Buyers who may be tempted by heavily discounted prices in second-hand houses will be reluctant to make commitments until the stamp duty issue is clarified.
The report comes at a time when house sales were beginning to pick up at the opening of the autumn selling season. However, agents last night warned that activity could cease until the Government indicated whether it would proceed with the taxation changes.
The Irish Auctioneers Valuers Institute (IAVI), which represents about 1,700 estate agents, last night urged Minister for Finance Brian Lenihan to provide clarification on stamp duty. Otherwise “the already limited number of sales would stop, further diminishing tax returns to the exchequer,” said Simon Ensor of the IAVI’s national council.
Mr Ensor welcomed the long expected abolition of stamp duty which, at 9 per cent for houses over €1 million, had been a cash cow for the Government throughout the property boom. Mr Ensor said the reintroduction of property tax was “somewhat inevitable” as it would provide the exchequer with a more stable taxation base.
Taoiseach Brian Cowen will be under pressure to decide on his policy in relation to property tax. He recently told a Sunday newspaper that he was “not wedded” to the idea of such a tax.
If the abolition of stamp duty proceeds, it could reactivate the second-hand market, where value is now emerging with house prices down by as much as 50 per cent from peak. However, sales have been relatively slow because of the lack of mortgage finance.
Marian Finnegan, chief economist with Sherry FitzGerald, said the punitive rate of duty in the second-hand market had “for too long been a barrier to entry to the property market and was in effect a tax on mobility”.
While the prospect of dropping stamp duty is good news for house-hunters, buy-to-let investors who were key players in the market over the last decade, are now being squeezed. They will still pay the full stamp duty on investment properties as well as the new property tax, all at a time when rents and values have been falling.
NCB stockbrokers warned that while the second-hand market would benefit, the changes would hit the buy-to-let market hard as a result of the property tax and the fact that stamp duty on investment properties would remain in place at a time of falling rents.
The stockbroking firm said there is a two-year supply of homes overhanging the market. The recommendations, it warns, will hit first-time buyers and investors – the two key groups which could clear the housing surplus.