Commercial property and the increase in stamp duty
In October, the Government raised the rate of stamp duty levied on commercial property transactions from 2 to 6 per cent. For the industry, the surprise was not necessarily the increase in duty imposed, but the scale of it.
“It was a real shock. We thought it might double from 2 to 4 per cent but we were really quite shocked that it tripled. It’s seldom that any tax triples overnight,” says Roland O’Connell.
He now expects transactions to dip on the back of the move.
“When transaction fees are low, it’s much easier to buy and sell property. As they start to rise, it becomes more difficult to buy and sell property”.
After all, the greater the costs, the longer investors may have to hold property in order to get a return on their money. As O’Connell notes, an investor will typically need a 10 per cent uptick in the property price just to break even – and a 20 per cent increase in prices to make a capital gain of about 10 per cent.
“This can take a long time,” he says.
But while the move may have shocked, it does put Ireland on a par with many other countries. According to data compiled by Savills, in Brussels the stamp duty rate touches almost 12 per cent, while Hong Kong, Paris, Cologne and Dusseldorf all have rates of more than 6 per cent, with Ireland now joining Berlin, Frankfurt and Australian cities like Sydney and Perth on 6 per cent. However, it is now uncompetitive vis-a-vis other European centres such as London (4 per cent), Milan (4 per cent) and Copenhagen (1 per cent).