The abolition of stamp duty for first-time buyers of second-hand houses may have only a temporary moderating effect on soaring house prices, experts said today.
The Minister for Finance, Mr Cowen, announced the abolition of stamp duty for first-time buyers of second-hand houses with a value up to €317,500.
For houses between €317,500 and €381,000 the stamp duty has been cut from 4.5 per cent to 3 per cent. Rates on houses valued between €381,000 and €635,000 have been cut from 7.5 per cent to 6 per cent while the top rate of 9 per cent remains for houses over €635,000.
The new rates come into effect today on property sales where contracts have been exchanged.
The tax changes are expected to increase mobility and stimulate competition between new developments in the suburbs and older houses in more mature areas.
First-time buyers are exempt from stamp duty on new home purchases and this led to a bias in favour of the new homes market, with about 50 per cent of all new homes purchased by first-time buyers.
In contrast, the corresponding figures in the second-hand market is 33 per cent.
However, there is still some ground to be made up in the Dublin market, where the average price of a second-hand house is now around €400,000.
But as the property market adjusts, the changes are expected to lead to higher prices for second-hand homes under €317,500 - which in turn will support prices for new build homes targeted at the first-time buyer market.
However, there was some disappointment that the Government made no move to reduce the 9 per cent stamp duty level on second-hand houses valued over €635,000.
The Society of Chartered Surveyors, which represents the construction and property industry, said that stamp duty on commercial property acts as a major disincentive to activity in the Irish investment market and will lead to a continuing outflow of property investment funds to other markets.
This year Irish investors spent an estimated €2.5 billion abroad and only €800 million at home.