The Return of Property Tax Incentives

Chris said:
That depends on how much more real estate will be bought as a result of this move, but it will result in more houses being bought than otherwise would have been, as some people will be enticed by the offer.
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And what element of the incentives will result in more houses being bought?
 
-the one that means there'll be no CGT if the property is held for 7yrs+.
Its one incentive that has caused me to make an offer.
There ain't many investments that are free of CGT - nor are there many that are yielding over 7% p.a.

Just because one has burnt one's fingers doesn't mean that one should always avoid the fire.
 

Would you ever stop being such a greedy old man and leave something for the rest of us?
 
I'm with DerKaiser on this one.
I see nothing wrong with incentives for a deflated market (if there have to be incentives at all). What we had was incentives for overheated markets. Timing is everything.
 
oldnick said:
-the one that means there'll be no CGT if the property is held for 7yrs+.
Its one incentive that has caused me to make an offer.
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There'll be no CGT if the property is held for 7+ years for the first 7 years only. An increased rate of 30% applies after that. (also only applies to property bought before the end of 2013)

I don't see that having a huge impact on the market.

The more significant incentives are aimed at the commercial market.
 
It all depends on what the seller does with the money. If the seller is not looking to but trade up, but is rather trading down or simply liquidating investments then the money tied up in the mortgage of the new buyer is offset by additional money available for productive investment by the seller. However, I would say that is a big if given the Irish mentality towards property ownership.


Purple said:
I'm with DerKaiser on this one.
I see nothing wrong with incentives for a deflated market (if there have to be incentives at all). What we had was incentives for overheated markets. Timing is everything.
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I agree that a CGT reduction will increase investment, but this will result in higher prices than otherwise would have been achieved which is of course very negative for those looking to buy a property.
But what baffles me most about the move is the total hypocracy. Lower CGT is positive for investment in property, but at the same time they raise CGT rate for all other investments which of course is going to be negative for investment. But what else could you expect from politicians and bureaucrats?
 

Well if the seller also trades up, then the person he buys from has a release of capital. Somewhere along the chain capital will be released. The only issue would be if the transactions typically result in new money being committed to unnecessary new building projects. That would be an unlikley scenario and the only one in which the net impact of the incentives would be to tie up more capital in property.





What other investments did you have in mind? European or US equities or bonds? Why wouldn't the Government incentivise the one that keeps money in the country.

Also, as owner of huge amounts of property the government can generate cash to pay for day to day services (or to pay down the debt owed by NAMA) by getting the market moving. The government currently generates operational cash by providing tax incentive on its debt (No Dirt on Post Office savings, No CGT on Bonds, etc), so removing CGT on property is a similar incentive to investors to provide it with liquidity.
 
DerKaiser said:
What other investments did you have in mind? European or US equities or bonds? Why wouldn't the Government incentivise the one that keeps money in the country.
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Because it could be a potentially very bad investment to put money into real estate at current prices which are not clearing. Imagine the uproar in a few years time if people who bought next year, because of the incentive, found themselves in deep negative equity.


Best way to get markets moving is to allow them to find a market clearing price. The only reason houses are not shifting is because people are still not willing to pay the current prices. Anything done to entice market activity through tax incentives artificially alters the price, which is always a negative.
Just because the bad decision was made to create NAMA doesn't mean that we should allow that mistake to be compounded by another bad decision.
 
Chris said:
The only reason houses are not shifting is because people are still not willing to pay the current prices.
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Not sure I would agree with that Chris. I would be more of the opinion that houses are not shifting because people are nervous about job security and because banks are not lending. I think a lot of people feel that house prices are pretty good value right now if they had the money (and confidence in their job security) to buy one.
 

I'd be curious as to your figures on how it makes sense to buy when you factor in all the costs of being a landlord? You are also assuming a capital appreciation I guess in your figures, what makes you so sure?
 
bronte... (gosh, my second post to you today!)

Capital appreciation- I'm not sure that property will be dearer in seven years than today. I suppose I think it will be, but this is based on the long-term history on property prices and I admit that everything has changed in recent years so I shouldn't make guesses based on the past.

Costs of being a landlord - I'm not as pessimistic about this as many other people on various posts appear to be. Dublin city centre apts are yielding 10% gross
e.g. a 120k apt can get a grand a month = 12k p.a.
From that 12k rent p.a. one deducts (very roughly) p.a.
- 400k ins,
- 300k nppr/prop tax,
- 300k annual decorating/small items (i.e. 2.100 over 7 yrs)
- 1k p.a. furniture, (i.e. 7k over 7 years)
- 500 k p.a. contingencies (unpaid rent, damage)

That's a cost of 2.5k -but to be on the safe side let's make it a cost of 3.000 p.a. -probably because I've missed something ! (mind you I'm hoping for rent increases...)

At present, if one stays under the higher tax bracket (and I'm now retired with no geat earnings) it means I lose a third of my income so i'll get ca. 6.000 nett nett.

I'm unsure what else one would do with that 120.000 to get 6.000 p.a. after tax.
Even on the higher tax bracket it gets 4.500 which is still a higher post-tax than any other investment.

=================

Actually I'm not going ahead as I've still got too many loans to pay off. But, as another example, I was talking to a friend ,an auctioneer, who has sold several cheap houses in Ballyfermot,Crumlin for an average of 110.000 which the buyers immediately fill with social welfare tenants on minimum of 900 per month payment. Not my favourite tenants,but it's another example of a decent return.

And,they too, are hoping that by 2019 property may be a bit dearer than today -so ,if they sell ,there'll be no CGT.

And,of course, rents may also increase a little over seven years.

Like anyone else I'd love a sure-fire guaranteed recommendation on any other investment....
 
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oldnick, I always used a 10 month occupancy when calculating expected income back in the day when I was a landlord. I also assumed that decorating would cost more. Service charges at an average of €1'000 would also have to go in there.
 
There are plenty of properties yielding over 7%. Recently back from london and the vultures are circling especially in the commercial property space. The big big unknown is NAMA and how they are going to behave.
 
-I'm basing my calculations on being the landlord of a few Dublin city centre apartments over the last few years.
- 2 months out of twelve per annum is very pessimistic or rotten luck.
- No service charge for me as I look after the small building (not that it needs much looking after). Maybe elsewhere, although a grand a year service charge for a small apt seems a lot unless it includes insurance which my figures do.
- I don't even spend 300 euros on decorating(which realy means painting) every year.
- And in the above figure of 3.000 costs I've put in 500 for contingencies plus another 500 in case I've erred.
- Some of my fellow landlords think that 7.000 to furnish a small apt is too much.

For the sake of accuracy I confess two things which may skew my figures...
1) I vaguely enjoy getting involved now that i'm retired so ,rather than me spend a fortune on professionals I have got on my knees with a drain-rod, held a paint brush or a pot of plaster. Being an active participative landlord is not for everyone.
2) I admit that I let other places that yield less than the above figures. Suburban houses in better areas get a lower rental yield than city-centre apts or cheaper houses in working-class areas, but still higher than banking deposit rates. And those houses have not lost much value recently and are reckoned to be the ones with most potential growth, so one wins there.

Look, nothing is certain nowadays but generally for the sharp purchaser willing to do a little work there are investment opportunites in irish properties.
I repeat - alternative suggestions welcome !
 
Well Oldnick you know what you are at. And you'e been at it a long time. I don't know anything about Dublin, but you can rent anything in the city center. Your figures make sense. Particularly as you are so self managed and keeping costs down that way and no doubt meeting the tenant's weekly to make sure everything is ship shape.

If you put 120K on deposit at 4% you'd get 4800 less DIRT and you're getting 6000K. Plus eventually you'll presumably sell the lot and then what will you do with the money?

Rents though will come down for the next while when the social welfare decreases kick in. But with the lack of investors they will eventually start taking off again.

Interesting about the suburban houses, that would be family homes? 3 beds ?
 
To be honest Bronte I was putting a good spin on it. I admit to a worry that NAMA will chuck in a hundreds of empty apts, that our economic crisis will worsen, all immigrants will leave (and they are important to the rental market.). And property taxes will increase.
But I suppose these and other worries can affect other investments. I'm sure the banks will soon stop giving 4% p.a. with the much-forecast ECB interest rate drop.
Anyway, I'm a hands-on landlord and maybe do a bit better than otherswho don't have the time.

About suburban homes -yes mainly 3 beds. This is the funny thing - and I'll give you a comparison of two neighbouringg suburbs. Palmerston present price -240k gross rent-14k, Ballyfermot 130k rent 11k. Obviously Ballyfermot produces a much higher yield. Investor cash buyers prefer Ballyfermot, but ordinary buyers ,if they had the money, prefer P'ton as it's considered "nicer".
In parts of Crumlin near the Canal,within walking distance of Dublin, similar prices and yields as Ballyfermot. One mile further along the canal -north Rathmines-prices of houses are three times higher -but rent is only twice as high.
 
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