If, as is mooted, the Government decides to double the rate of stamp duty for investment funds that bulk buy properties the biggest beneficiary will be ordinary people struggling to get on the housing ladder.
It will also make it easier, for those who can afford it, to buy an investment property.
But should they? Leaving aside the moral arguments about viewing property as an investment when so many people are put to the pin of their collar trying to buy a home, there is also the high number of private landlords stampeding to the exit door to consider.
In the second quarter of this year about two-thirds of sellers (67 per cent) in Dublin were private landlords. Does their departure from the market en masse, which Dublin estate agent Owen Reilly refers to as an “alarming exodus”, make it a bad time to invest, or a good one?
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In fact, the reasons so many private landlords are selling up are varied, explains Reilly.
“In some instances, some of these landlords are in their 70s and are just coming to retirement stage,” he says. “In other cases you’ve got accidental landlords who bought their property at the height of the market, as a home initially, and then moved on as they got older and started families, and found they were in such negative equity that they couldn’t sell. So in other instances, those people are selling up.
“Other reasons would include the amount of regulation that is in the rental market now, including rent caps, and the cost of maintenance. So there are quite a few reasons why landlords are selling up.”
In fact there are plenty aspiring landlords snapping up such properties too. Reilly’s data suggests investor activity accounted for 25 per cent of buyers in the first half of this year, with 63 per cent of buyers overall paying in cash.
“A lot of the people investing have sold businesses and are investing in real estate to produce an income,” he says.
Many are investing in property through their pension. The big appeal here is that there is no tax on the rental income and no capital gains tax on any increase in value when the property is sold, “a huge advantage,” Reilly points out.
Indeed, so advantageous is it that Reilly has had clients who sold a property that was in their own name and immediately reinvested in another property which they bought through their pension.
Indeed, often buyers who have a lump sum to spend on an investment property will decide that instead of putting all of it in one, they will use the money to buy two, borrowing the additional 50 per cent required, because the interest on the mortgage is tax deductible.
Timing is everything in investment, “but there is literally no investor who would have regretted buying in the last 10 years, given the capital appreciation we’ve seen,” says Reilly. “That’s the unique thing about property – it will produce an income and it is a very good hedge against inflation.”
One cohort for whom buying an investment property is particularly appealing right now is parents with children likely to be moving for college in the coming years.
According to Michael O’Neill, branch manager with estate agent Sherry FitzGerald in Dublin city centre, it can make particularly good sense for these “parental investors” to buy and hold such a property, given how much their college-going children will have to pay in rent otherwise.
“We see a good bit of that and afterwards, when the child has finished their education, they make the decision to either rent it out or sell it,” says O’Neill, who also points out that parental investors are both national and international buyers.
Here the property most in demand is a two-bedroom apartment, with the second bedroom typically rented to a college friend. For this type of investor, issues around rent caps, which limit rental increases to inflation or 2 per cent a year, are less of an issue because the property is being used by family.
Finally, while all investors are subject to the “buyer beware” principle, there is an additional caveat worth pointing out. Up to 100,000 apartments and duplexes built between 1991 and 2013 are now estimated to require remediation work in relation to fire safety defects, structural issues or water ingress defects.
While the good news is that a Government remediation scheme is in place to help, for putative property investors it’s as well to be aware, if only so that you don’t find yourself caught up in hassle you could have avoided.
