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Abolishing stamp duty for FTB's won't harm the market. Removing the bands takes away any notion of a target for prices. Of course some money will go to vendors instead of the government but because prices are not rising anymore, the effect will be minimal. The stamp duty tax take from FTB's is tiny, mainly because they're all attracted to new developments. You're right about it being a cosmetic measure, that's why it won't affect the market in a big way.
Arthur Daley
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Agree, various VIs keep coming up with another wheeze to keep the game rolling, like some drunken gambler in a Vegas casino at 4am trying to play their way out of trouble. Sometime, not necessarily in the election year of '07, a bust must happen. If this market was more efficient an adjustment back to reality would have happened years ago. But the VIs have such a grip on the public concious not to allow it happen easily or I think quickly. If it wasn't for the external interest rate factor we wouldn't even see the calming of prices we are seeing.
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poormouth
Guest
I think this is another example where the property obsession has warped peoples thinking. I would be in the same boat as micmclo i.e. stand to benefit from a small farm inheritance in the west of Ireland, but never would consider it as a one-way street to riches and would only consider selling as a last resort. In fact I'm kind of hoping the prices will settle back down, since the escalation prices is making a lot of the small-holders trigger happy seeing as how sites / houses have now become the most valuable cash-crop. This has already lead to a former rural farming area beginning to resemble a suburb. How beautiful will the area beside Lough Derg be when it's packed with houses
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KarlK
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Does anyone here know what the effect of a fall in Stamp Duty on house prices for FTBs would be? According to basic economics, the burden of the tax is shared between the supplier and the purchaser depending on the price elasticities of demand and supply. Where supply is severely constrained, the tax is paid entirely by the supplier (the builder). Where demand is insensitive to price (such as cigs) the price is paid by the consumer. Supply in the housing market is constrained by planning regs and demand is not limitless as people can rent, or live with family. So this would seem to indicate that much of the stamp duty burden is paid by builders. Any thoughts?
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Builders don't come into the equation...owner-occupiers of new houses/apartments are exempt from stamp duty, provided that the area of the house or apartment does not exceed 125 sq. metres.
However you are correct about the burden being shared between supplier and purchaser. Supplier in this case being the vendor of a second-hand property. Abolishing stamp duty for FTB's would make second hand property more attractive and would put some negative pressure on new developments.
While I agree with you that removing the bands removes the targets, you also have to take into account that currently the market can bear house price + stamp duty. Removing stamp duty means house prices move up to what the market can bear.
Now throw into the mix that the extra 3/5/7.5% stamp duty can now be borrowed (as opposed to saved by buyer when it was stamp duty) and where do prices head?
The danger here is that it kickstarts another phase of irrational exuberance. If anything, SD should only be removed in a stable market, not at a time of mania.
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phoenix_n
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I thought it was due out on the 5th.
I'm talking about abolishing it for FTB's only, not the entire market. FTB's currently don't pay much stamp duty anyway. The positive effect on second-hand property will be offset somewhat by the negative effect on new developments.
Arthur Daley
Registered User
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It'd be nice to bury it on a sleepy Sunday.
While the stats are being prepared to start bringing the bad news to the massses, I expect a fightback to begin and a shutdown of supply by the VI's. We should see layoffs of construction workers, a halt to residential land rezoning, and planned new starts never get beyond the site clearing stage.
And Bertie is still in power why? McDowell allowed Bert to stay on the condition that there would be stamp duty reform, which he can then crow about having brought about. He needs to be able to show that he has some influence over FF policies or his party are finished and this is his only play.
As for Cowan having said that there will be no change, indeed he probably hopes there won't as he can see the futileness of such a policy, but unfortunately he is not part of Berts kitchen cabinet and thus has little or no influence over what will happen.
Do you have a source for this, or is it just speculation on your part? The point is, stamp duty reform/abolition as put forward by McDowell, insofaras I understood it, related to next government not next budget. Which leaves them nicely off the hook.
The problem is if the PDs pull the plug on the current government they are finished anyway. There is no way back for them at the moment if they are a small party seeking election having walked out on Fianna Fail whose figures are currently improving.
That being said - the problem is most sensible people (the ones who are living in houses which are their homes, as opposed to the ones who will desperately need to trade up from their "suitable for a professional couple one bedroomed starter homes" or investors looking to make a capital appreciation killing are fully aware that property, as things stand now, is too expensive for many current buyers. They don't see stamp duty as the problem, they see the prices as the problem. But they don't care so much because they have their homes.
Tinkering with Stamp Duty during a market correction is nothing new. The UK introduced The Stamp Duty (Temporary Provisions) Act 1992 to giving first time buyers a 'stamp duty holiday' However the market continued to fall.
http://www.opsi.gov.uk/ACTS/acts1992/Ukpga_19920002_en_1.htm
http://www.opsi.gov.uk/ACTS/acts1992/Ukpga_19920002_en_1.htm
Nah, idle speculation on my part, you may be right of course, but I think FTB's (at least) will be let off the hook, it only costs about 80-90m and is cheap at the price. They will also talk about how they're going to reform it next year, by making it fair and equitable etc.
A bit unfair there Calina, how many people under the age of 35 do you think could afford a home they're happy to stay in for the forseeable future?? The lack of availablity of such homes being a major factor in the decision to purchase the apartment in the city as opposed to the 3 bed semi in Carlow.
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KarlK
Guest
OK, then that means that stamp duty is shared between vendor and purchaser.
eg Say stamp duty is paid 66% by vendor and 33% by purchaser then consider a house with an untaxed market value of 300K
Stamp duty is 3%=9,000
Amount paid by vendor: 6K
Amount paid by purchaser 3K
House price after tax: 204K + 9K stamp duty
If we assume that most vendors go on to spend the proceeds of their sale on more property, this would indicate that eliminating stamp duty for FTBs would
- increase house prices for purchasers by more than half the value of the stamp duty (as most of the stamp duty burden prior to this was paid by the vendor in reduced house price)
- increase the amount of cash available to the vendor to purchase a trade-up house.
- reduce stamp duty take from FTBS
- stimulate more transactions in the trade-up market (leading to more stamp duty revenue)
FTB's don't currently pay stamp duty on property below €317,500 so the effect on the market from your example will be zero.
This gets back to my point - abolishing stamp duty for FTB's will have little effect in stimulating the market.
Builders and new homes estate agents will be hit as a key competitive advantage for new builds will be gone.
With the current situation, private vendors are subsidising developers. Developers can currently charge a stamp-duty premium as their sales are exempt.
Very few and therein lies the problem.
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somerset
Guest
An interesting link to help those considering the rent v's buy argument (a recurring topic in the sentiment of buyers in the property market I might add before i am moderated)
http://www.yourmortgage.com.au/calculators/rent_vs_buy/
In australia the property market is still on the way down, despite the negative gearing facility ( you can right off your investment property losses against your PAYE tax) ... dont think you can do that in Ireland
http://www.yourmortgage.com.au/calculators/rent_vs_buy/
In australia the property market is still on the way down, despite the negative gearing facility ( you can right off your investment property losses against your PAYE tax) ... dont think you can do that in Ireland
"Personal bankruptcies in Britain climbed to a record in the 3rd Q as surging house prices pushed consumers to take on more debt and rising interest rates reduced their ability to repay. Inidividual insolvencies rose 5.7% in the quarter - the highest since 1960 - according to UK govt"
That's a scary headline considering our own level of in-debtedness, even allowing for higher UK interest rates than ours.
That's a scary headline considering our own level of in-debtedness, even allowing for higher UK interest rates than ours.
Fundamentally, you may be correct.
But in a market driven by sentiment this stands a good chance of keeping the party going, even if it just staves off the perception of a slowdown on the horizon.
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