Property prices to soar in July thanks to ‘interference’
Minister warned €350,000 homes will rise by €5,000 because of doomed help-to-buy scheme
HOUSING Minister Eoghan Murphy has been warned that further interference in the property market and prematurely ending the help-to-buy scheme will inflate property prices and demand for housing.
Homes in urban areas around the country worth €350,000 are expected to rise in value by another €5,000 next month alone.
Increases will be fuelled by a frenzy of additional first-time buyers entering the market to avail of the Government’s tax-incentive before it is too late.
Experts are warning that property prices will continue to grow before October’s Budget and predict that monthly increases in July and August could peak at 2pc.
Fears among first-time buyers that the help-to-buy scheme will be terminated have grown since Mr Murphy said he was concerned it had not achieved the expected results.
However, Mr Murphy has been told that ending the scheme two years early will encourage buyers to rush into the market before October in order to capitalise on the tax incentives before they are removed. This will accelerate demand, driving house prices higher in the short-term.
Philip Farrell, a property consultant and market commentator, said the help-to-buy scheme introduced by Simon Coveney was having a devastating effect on the property market.
“It was brought in to assist first-time buyers who were unable to meet the increased deposit requirements and source the finance required. However, what it has done is inflate prices.
“It is clear Minister Murphy is going to have to remove this. It is unlikely he will do it before the Budget. They tend to do these things in the confines of the parameters of the Budget.”
Prices will continue to rise in urban areas at a significant rate, thanks to the threat now looming over the doomed initiative. July and August, months when the market traditionally catches its breath, will now be exceptionally busy for auctioneers and house-hunters.
“The first-time buyers will be more interested now because of the likely abolishment of the help-to-buy scheme,” said Mr Farrell.
“Supply is not going to increase so it is likely that demand will continue to increase and even become stronger in the next month. It is likely to cause increases of between 1pc and 2pc in both July and August.
“If you have an average value in the greater Dublin area of €350,000, 1pc to 1.5pc of that is €5,000, and this [increase] will be purely as a result of pent-up demand in anticipation of the abolishment of help-to-buy.”
An additional 18,000 homes are expected to come to market this year but demand is closer to 40,000 units.
More than 7,270 applications have been made for assistance under the help-to-buy scheme since it was introduced last year by Mr Murphy’s predecessor, Simon Coveney. The 1,679 claims already made under the initiative will cost €24.5m, but the total cost is set to come in at more than the €50m put aside by then Finance Minister Michael Noonan.
The incentive provides for a refund of up to €20,000 on income tax and DIRT paid over the previous four years for first-time buyers purchasing a house worth less than €400,000. It was due to run until December 2019.
The scheme is being reviewed by officials in the Department of Finance and is expected to be scrapped. However, the minister has been warned this could also have negative consequences.
Tom Dunne, head of DIT’s school of surveying and construction management, cited a similar scheme in the UK that had disastrous consequences.
“Nigel Lawson announced he was going to withdraw some incentives that they had in the 1980s for property. He gave a notice period and people reacted by saying ‘I better go and buy now’ and that drove up house prices.
“He kept the housing market in the UK well above a level where it should have peaked at. People lost out because when the markets came back to normality, and the prices came down, what they had gained in a tax break was lost in the value [depreciation] of the property.”
In some cases then house prices rose by 50pc within six months and Mr Dunne said the minister would have to be wary of further interference in the Irish market.
“People will anticipate and fear a removal of the tax break and may move in advance of that.
“If everyone behaves that way they just compete against each other, get the house prices up a little higher than they would. When the tax break is gone, the prices correct back to normal but effectively they hand the tax break to the builders.
“This is the problem with the Government altering their policy on a very regular basis. They create behavioural patterns in the market that are not desirable. It is better to have a solid policy which you implement where you are secure in your intentions and people can rely on it.”