Secton 23 & 50 Properties (the Next Irish Crisis)

The_Conductor

Pkiernan wrote: »

If they want to balance the books, eliminate the waste in the public service, simple as falling off a log.

Its all well and good to trot out the line- eliminate the waste in the Public Service- the simple fact of the matter is that the vast bulk of current expenditure is on Social Welfare, Health and then the Public Sector followed by Education.........

Even public sector employees pay their taxes- so their drain on the exchequer is not what headline figures might suggest- leaving the big bogeymen of Social Welfare and the Health Sector as the two elephants in the room.........

Pkiernan wrote: »

In the same vein of thought, would you for example have a problem with the Government introducing increased taxes on monies earned in previous years?

I disagree with it- but it is rife and has been implemented in several different manners already. My own particular bugbear is levying the house tax on folk who have already paid considerable amounts of stamp duty- and who are also in negative equity (which is virtually every single property that has changed hands since 2000, and once interest rates go back to 'normal' levels, probably late 1980 levels.......)

Think of the other sectors that have been hit with retrospective taxes- the vintner, the dental sector, or indeed the ordinary worker who has had their emergency levy formalised in the current budget. The one thing this government is damned good at- is introducing stealth taxation, under the radar as it were.

Section 23 was highlighted for the chop 12 years ago in the 1998 report- extensive lobying kept it on the books well past its best before date, it too has now been chopped.......

Treehouse72

interpoint wrote: »

Thanks Ricman.

Every economy needs investors.

Investors need to have a clear picture of what they are getting involved in.

Section 23 & 50 tax incentive schemes were at the time clearly explained to Investors. Investors made their decision based on these facts.

Retrospectively rule changing is unfair and unjust and is possibly illegal. It undermines future investment and will severely if not fatally distroy the rest of the Irish economy.

I do not have a problem with the government changing the rules on future investments but this retrospective "Tax Grab" should be stopped.

It is going to bankrupt alot of people in the country.

Your three major complaints seem to be:
1. That the S23/S50 changes are like changing the rules of the game half way through
2. That investor confidence is important and must be protected
3. That the damage of letting these investors go under is greater than the cost of saving them

In my view you are materially wrong on each of those points.

1. Is it possible that, rather than the rules being changed half way through, maybe you didn't understand the rules in the first place? Did you ask your investment advisor, accountant or mortgage broker whether these reliefs could be withdrawn? Because a change of this sort was always on the cards. Not factoring in such a possibility was most likely a product of bubble-times thinking where no allowance was made for bad times (not by the government, the banks, investors or households). If you didn't know that these reliefs were subject to change, then you invested unwisely. And if you did know, then these changes can't be a surprise. One of those two things must be true. Alternatively, if an advisor did tell you they couldn't change, get in touch with a solicitor or the advisor's trade body.

2. Investor confidence in what? The government? Or in the property market? Or in a contract? If the first, who cares? You cannot restore confidence in this government so what's the point of trying? The new government will come in with a mandate and confidence, so the issue of S23/50 doesn't arise. If you mean the property market, there's no confidence in that either because it's still way overvalued. So artificially trying to boost confidence in that would also be a pointless task. And if you mean confidence in a contract, you're also barking up the wrong tree because it wasn't a contract. It was a mutable tax relief.

3. A national priority is that we need to find a floor on the property market, thus reducing rents and future mortgages so that we can all bear further wage cuts and see lower prices. Sustaining artificial and loss-making "businesses" impedes that and the benefit of sorting the profitable from the non-profitable will far outweigh costs borne as a result of burning them. Indeed, fireselling some of these places will raise cash the banks won't need to get from the taxpayer. Ok, they'll realise book writedowns, but maybe any requisite capital injection can come from the IMF fund at reduced rates. Bottom line: it's reality time and people with losses need to realise them now. Ain't no other way.

who_ru

Treehouse72 wrote: »

Bottom line: it's reality time and people with losses need to realise them now. Ain't no other way.

Hear Hear - this delay & pray strategy adopted by the Govt and the financial institutions is only going to make worse an already shocking national situation. January pay packets might open a few eyes.

overall an excellent post which i agree with 100%.

not even wrong

Pkiernan wrote: »

In the same vein of thought, would you for example have a problem with the Government introducing increased taxes on monies earned in previous years?

For example, say you were lucky enough to have a good job and a 150k salary in 2006. Do you think the govt should be able to go back now and demand that you pay more tax on that years salary today?

Do I think that they should go back and slap an extra tax on last year's income on all of us? No.

Do I think they should be able to, in the extraordinary circumstances of a financial catastrophe and overgenerous tax breaks for that income when it was originally earned? Hell yes.

In any case your analogy is false as the government is not going back and retaxing the rental income you earned in 2005, they are removing the tax relief for rental income that you will earn in 2011.

shoegirl

Removing the tax breaks is hardly of relevance now. Mostly section 23s were built up until around 2000 after which most were in extremely rural areas - the whole point of the schemes (aside from creating convenient tax shelters for a certain political parties cronies) was to renew areas that were close to dereliction. The section 23s of value were mostly sold by the end of 2000 which means that they'd have expired by now anyway. The majority after 2000 were in odd areas outside the main cities.

Section 50 would be a huge impact however as these were often very large and high priced apartments which would start to compete with similarly sized houses on an open rented market. I got an impression that many of these were bought by insitutional interests so it would be interesting to see what happens once the tax break runs out.

jmayo

interpoint wrote: »

Hi,

A few years the Irish government introduced a tax relief incentive scheme called Section 23 and Section 50. The purpose of this was to attract small investors to buy designated properties in areas that needed regeneration. It usually applied to Holiday Homes, Student Villages and developments in Rural or remote parts of the country. These tax breaks were all discontinued in recent years.

It basicially works like this.

This country is in need of tax revenues and I for one completely understand and respect this. I am not against a property tax nor am I against austerity measures as they are needed to meet our fiscal obligations, but to retrospectively change tax reliefs previously enacted is simply wrong and will have very serious implications for the thousands of what I would call passive investors who entered contracts with the government over the last 10 years. To alter these obligations is simply unfair and unjust.

If this affects you please post to this thread..

Is it just wrong because it affects you ?
Section 23s and section 50s were a joke and they did more harm than good.
They screwed up countless villages in places like Leitrim and for what ? Oh yeah so that property "investors" in the likes of Dublin could offset their revenues in the capital, by having a holiday pad in the the sticks.

They helped price local people in actual need of properties out of the market, because these section 23 properties had a premium attached to their tax avoidance capabilities.

interpoint wrote: »

Thanks Ricman.

Every economy needs investors.

Investors need to have a clear picture of what they are getting involved in.

BS we are talking about property investors here, the ones who helped turn this country from a real economy into the worlds biggest bubble economy.
Trust me an economy does not need the type of investors that invested in section 23/50 investments.
It needs investors who invest in real businesses, investors such as the ones that invested in the BES schemes.

interpoint wrote: »

Retrospectively rule changing is unfair and unjust and is possibly illegal. It undermines future investment and will severely if not fatally distroy the rest of the Irish economy.

And there you go again trying to lump the "property mad investors" in with people that invest in real businesses and not ones that rely on tax right offs, rent allowance schemes etc.

interpoint wrote: »

It is going to bankrupt alot of people in the country.

It is going to bankrupt the ones that thought property investment was the way to make their millions, puty all their eggs in one basket and made poor decisions based on cheap credit, and the country would have been a much better place if we never had such people in the first place.

interpoint wrote: »

Sorry, I disagree with you. Ireland's economy is built on trust and law. It is what makes us an attractive country for foreign direct investment and inward investment. I agree that rules can change but not at the expense of these principles. Retrospective taxation is wrong.

BS again.
Stop try to equate people who had multiple property investments who thought buiying a couple of gaffs down in Leitrim to use as a tax right off with multinationals coming into the country creating actual entreprises that brings jobs and exports to the country.
There is no way that the government are going to retrospectively tax the likes of Pfizer, Intel or any other FDIs.

interpoint wrote: »

The actual property or the value of it is completely irrelevent to most investors that actualy bought them. They simply wanted the tax break to offset their other existing Irish rental income and this could be done lawfully if you purchased a section 23 property.

So they just wanted a property in the middle of nowhere, that was totally unnecessary, that was not needed except as a tax write off for them.
And people wonder why our country is f***ed.

interpoint wrote: »

However, the section 23 properties themselves were often very expensive and in less than ideal locations. Their potential to be viable investments on their own was often non-existant. They were simply a vehicle or a means to an end. They were simply a tax shelter.

So really then why buy them, did you ever think that by you buying an overpriced property in some village you were making it more difficult for locals to actually afford a property in the area ?
Oh wait it was a way of you avoiding paying tax and you didn't care two sh**s about what affect that had on the communities you were buying the tax shelter in.

interpoint wrote: »

I am not arguing whether tax shelters are right or wrong. It was the policy of the Irish government to introduce these tax shelters to encourage development and construction projects around the country. The initial result was a property boom and huge tax windfalls. The end result is what we have now, a country on its knees.

I do believe that tax shelters are a usefull instrument to stimulate an economy but they are also extremely dangerous when they get out of control. They can create a false non-viable world where clarity & reality is removed and replaced by blind greed.

And the penny drops.
A bit rich property investors who have been burnt by investment in section 23s talking about blind greed. :rolleyes:

interpoint wrote: »

The stupidity of the Irish Government has resurfaced again with the retrospective Section 23 changes in the Budget. This is only going to make things alot worse as now we are dealing with the future credability (or lack of it) in the Irish economy.

You are forgetting the stupidity of the so called property investors who thought buying a few pads in a village in Leitrim was a good idea because it offered a tax shelter.
You admit they probably knew the properties were badly located and were of no other value, but for their tax shelter credentials. :rolleyes:

shoegirl wrote: »

Removing the tax breaks is hardly of relevance now. Mostly section 23s were built up until around 2000 after which most were in extremely rural areas - the whole point of the schemes (aside from creating convenient tax shelters for a certain political parties cronies) was to renew areas that were close to dereliction. The section 23s of value were mostly sold by the end of 2000 which means that they'd have expired by now anyway. The majority after 2000 were in odd areas outside the main cities.

Wrong wrong.
I know someone who was involved in section23s in 2004/2005 and they were still being built and there were still "smart investors" trying to get their hands on them.
They were not renewing any derelict sites, but ruining a lovely village on the Shannon.

Pkiernan

not even wrong wrote: »

Do I think that they should go back and slap an extra tax on last year's income on all of us? No.

Do I think they should be able to, in the extraordinary circumstances of a financial catastrophe and overgenerous tax breaks for that income when it was originally earned? Hell yes.

WOW - I am stunned at this reply - nothing short of Stalinism!!

In any case your analogy is false as the government is not going back and retaxing the rental income you earned in 2005, they are removing the tax relief for rental income that you will earn in 2011.

My analogy is not false - they are retroactively changing the rules. The very essence of our legal system hinges on the fact that laws cannot be retrospectively changed.
The changes to the rules means that people will not have rental income to get tax relief against, as they apply it only to the rent earned on the property itself - in direct violation of the law which allowed owners to offset rent earned on other properties.

You seem to think that the current hard times justifies illegal behaviour by our government. Thats' a shame.

interpoint

jmayo wrote: »

Is it just wrong because it affects you ?
Section 23s and section 50s were a joke and they did more harm than good.
They screwed up countless villages in places like Leitrim and for what ? Oh yeah so that property "investors" in the likes of Dublin could offset their revenues in the capital, by having a holiday pad in the the sticks.

Strange point of view. Go ahead and make that case to the thousands of tradesmen that were involved in the construction sector and the billions in direct and indirect tax that was harvested by the government during the past decade. You blame the investors for investing what is put in front of them. The government came up with the section 23 / 50 schemes and now wants to get out of it using retrospective taxation and an illegal act. When it comes to screwing up villages then I suggest you should complain to the local planning department.

jmayo wrote: »

They helped price local people in actual need of properties out of the market, because these section 23 properties had a premium attached to their tax avoidance capabilities.

Total waffle. Read my previous posts. Section 23 / 50 only benefit individuals that have existing rental income. The actual property is often totally irrelevant to the investor. These properties would not have been built in the first place if it was not for the tax designation. See comment above as to who benefited in the short term.

jmayo wrote: »

BS we are talking about property investors here, the ones who helped turn this country from a real economy into the worlds biggest bubble economy.
Trust me an economy does not need the type of investors that invested in section 23/50 investments.
It needs investors who invest in real businesses, investors such as the ones that invested in the BES schemes.

Again this is total rubbish. You obviously do not understand BES either. Most companies that receive BES investment do not give any return. If you have a tax bill of 50k and you back it with another 50k you can buy 100k's worth of a BES company. If the company does not perform you get nothing (paper shares worth zero). You blame the investors again as if it is their fault there was a property bubble. Nothing is further from the truth... I suggest you ask your local politician why the economy was stimulated out of control.

jmayo wrote: »

And there you go again trying to lump the "property mad investors" in with people that invest in real businesses and not ones that rely on tax right offs, rent allowance schemes etc.

Investors will invest in anything that will provide a return. Investors bought these tax shelters to offset income they already had. What they invest in to achieve a tax efficiency really does not enter the equation. You seem to think that there is some morality or social conscious when it comes to Investors. That is a niave and simplistic viewpoint. Again anything can be stimulated in an economy by a government. It is how it is managed thereafter is the key !!

jmayo wrote: »

It is going to bankrupt the ones that thought property investment was the way to make their millions, puty all their eggs in one basket and made poor decisions based on cheap credit, and the country would have been a much better place if we never had such people in the first place.

Really... That comment is not worth a response.

jmayo wrote: »

BS again.
Stop try to equate people who had multiple property investments who thought buiying a couple of gaffs down in Leitrim to use as a tax right off with multinationals coming into the country creating actual entreprises that brings jobs and exports to the country.
There is no way that the government are going to retrospectively tax the likes of Pfizer, Intel or any other FDIs.

Again an irrelevent argument. Who do you think made all the material that went into the construction boom ? CRH ? Kingspan etc.. All perfectly happy to milk the Irish Celtic Tiger and get access to lowest Corporation Tax in Europe at the same time. Remember that there was more people employed in the Constuction industy during the height of the boom than there was in Agriculture. Nobody complained when all this was going on. Least of all the Government of the day. Now the chickens have to come home to roost and the Investors that made the boom possible are entitled to their pound of flesh.. Sorry but any act by the Government to slip out of this contract is a Criminal act against its own citizens.

jmayo wrote: »

So they just wanted a property in the middle of nowhere, that was totally unnecessary, that was not needed except as a tax write off for them.
And people wonder why our country is f***ed.

Correct..

jmayo wrote: »

So really then why buy them, did you ever think that by you buying an overpriced property in some village you were making it more difficult for locals to actually afford a property in the area ?
Oh wait it was a way of you avoiding paying tax and you didn't care two sh**s about what affect that had on the communities you were buying the tax shelter in.

You really don't have a clue about the topic being discussed with comments like that

jmayo wrote: »

You admit they probably knew the properties were badly located and were of no other value, but for their tax shelter credentials. :rolleyes:

Correct..

jmayo wrote: »

Wrong wrong.
I know someone who was involved in section23s in 2004/2005 and they were still being built and there were still "smart investors" trying to get their hands on them.
They were not renewing any derelict sites, but ruining a lovely village on the Shannon.

You should write a stongly worded letter to the local planning department or to your local FF poilitician and ask them to explain how they allowed this to happen. You seem to think that the Investors are the root cause. You are totally incorrect

Senna

interpoint wrote: »

You seem to think that the Investors are the root cause. You are totally incorrect

Investors were not the root cause and i think everyone knows that, but investors have to realise they were gambling, buying any property other than a PPR was the same as putting money on the favourite at Cheltenham.
The bets did not pay off, not because the gov are taking away these tax breaks, but purely because the property market collapsed. These Investors bought into the s23/50 market (albeit only for the tax break) and cant expect not to bear the (more) pain when the market collapses. Its feeling the pain by back-door intervention, but in my view a necessity.

As for long term investor confidence, taking away these tax breaks wont have any effect. When the market reaches a level were investing can yield a potential return, (still gambling) but not based on low tax, low interest rates, huge capital appreciation or outside assistance, investors will re-emergence.

Treehouse72

interpoint wrote: »

Strange point of view. Go ahead and make that case to the thousands of tradesmen that were involved in the construction sector and the billions in direct and indirect tax that was harvested by the government during the past decade..

My God, have you learned absolutely nothing in the last 3 years??? Where in the name of sweet suffering Jaysus do you think those "billions harvested" by the government came from??? And those thousands of tradesmen you mention, are you telling us they'd be grand now if we'd just gone on building 90,000 houses a year?

Does the word sustainability mean anything to you? What about the phrases "wealth creation" and "zero-sum game"? Anything on those? Here, how about this word: bubble. Does that ring any bells?

It angers me so damn much - which ends up with me being extremely rude to some posters here - that people are still simply refusing to use their bloody brains and process the (relatively simple) lessons of what's happened. Honestly, when I read self-serving bilge like this it reminds me I'm not such a bad guy when I'm rude to people like you. You absolutely deserve it.

not even wrong

interpoint wrote:

the State incurring legal costs to defend an action which is both immoral and unacceptable.

interpoint wrote:

You seem to think that there is some morality or social conscious when it comes to Investors. That is a niave and simplistic viewpoint.

I see, so morality applies to everyone except you. There's a word for people like you.

interpoint

Senna wrote: »

Investors were not the root cause and i think everyone knows that, but investors have to realise they were gambling, buying any property other than a PPR was the same as putting money on the favourite at Cheltenham.
The bets did not pay off, not because the gov are taking away these tax breaks, but purely because the property market collapsed. These Investors bought into the s23/50 market (albeit only for the tax break) and cant expect not to bear the (more) pain when the market collapses. Its feeling the pain by back-door intervention, but in my view a necessity.

Hi Senna, yes the market has collapsed and the value of everyones property has decreased. The people that bought the S23/50 designated properties are certainly not immune to this market correction. In fact because S23/50 were often more expensive because of their tax designation status they have seen the biggest fall in value.

However, if you try and sell a S23/50 before the expiry of the 10 year tax shelter has run its course there is an automatic claw back of the capital allowances. So selling them is not an option unless you want to incur even more costs.

My issue is that the Government thought up the whole S23/50 scheme with plenty of rules and penalties on their operation and now just because there is a collapse in the property market they want to change these rules. That is unfair and unjust.

Many very large S23/50 investors have used up ALL their S23/50 capital allowances in the first year and in their case the new budget ring fencing is not going to affect them all. They are only exposed to the property collapse just like everyone else is.

However, the small private investor is also exposed to the property collapse just like everyone else but should be allowed to avail of the remaining term of the schemes they are involved in.

Senna wrote: »

As for long term investor confidence, taking away these tax breaks wont have any effect. When the market reaches a level were investing can yield a potential return, (still gambling) but not based on low tax, low interest rates, huge capital appreciation or outside assistance, investors will re-emergence.

Taking away the tax breaks BEFORE the 10 year term has run its course is economic suicide and will have a massive effect. People must be allowed to see out the full term of the S23/50 they are involved in. They cannot get out of them because of the claw back rule. This is totally in conjunction with and aside from the massive depreciation of property market in general.

I agree, there is always going to be investors in government backed initiatives but NOT if it becomes the norm for the government to change the rules in mid-stream. What's next ? Retrospective taxation of Pensions ?

You speak of "back door intervention".... Is that necessary ? Why ? Scape goats are required ? Is it not enough that the property market has collapsed and negative equity is rife through the country that the government should implement an illegal "back door intervention.."

Treehouse72 wrote: »

It angers me so damn much - which ends up with me being extremely rude to some posters here - that people are still simply refusing to use their bloody brains and process the (relatively simple) lessons of what's happened. Honestly, when I read self-serving bilge like this it reminds me I'm not such a bad guy when I'm rude to people like you. You absolutely deserve it.

There are alot of confused emotions going on there. This topic thread is about the recent changes in the Budget regarding S23/50 properties and the knock on effect it will have. Please stay on topic.

interpoint

not even wrong wrote: »

I see, so morality applies to everyone except you. There's a word for people like you.

This topic thread is about the recent changes in the Budget regarding S23/50 properties and the knock on effect it will have. Please stay on topic.

The_Conductor

Also- one of the rules governing S23 properties is that they have to let on the open market rates. If they are unlet, for any reason, under a strict reading of the rules- and I'm not a solicitor, their tax designation for the vacant period could be revoked. (I'm looking at legislation drafted in 1964- I'm sure there is more uptodate legislation).

Multiple people here are asserting that ending the schemes early is 'illegal'. Just because a reasonable expectation of a particular level of income, or in this case, avoidance measures, is not being followed through on, does not make it illegal. The number of 'get-out' clauses appears to me to be quite varied.

Finally- the title of this thread is S23 and S50 Properties- the next Irish Crisis...... Oh no it isn't. However bad its going to be for a few thousand people- it will be absolutely nothing like the crisis that is going to happen once the ECB start putting up base rates (with the latest GER and FR inflation figures in, now thought to be Q3). You are looking at 180,000 people with tracker mortgages on their PPRs getting whacked (and over a 4-5 year period there is a reasonable expectation that 'normal' rates will return (defined as an ECB overnight lending rate of 4.5%)- which will add 3.5% onto everyone's mortgages, just when TRS etc is getting wound up........)

I understand that investors who purchased these properties as tax avoidance measures are understandably furious- however the simple fact of the matter is that muttering about it being illegal, is simply not going to cut any ice with a populace who are just about ready to attack national politicians and councillors with pitchforks, burn bankers out of their homes and beat up anyone who admits to be a consultant or a public sector employee.

The whole purpose of S23 and S50 schemes was to improve the standard of rented accommodation, gentrification of run-down urban areas, and the provision of needed services where investors were unwilling to invest without an added incentive to do so....... It all worked perfectly well for almost 25 years- until the early '90s when all hell broke out.

I would seriously suggest that people need to check the voting records of their local representatives- and punish those who voted against the national interests of the country, at the ballot box.

Until such time as the clientèle'ism of parochial politics is confined to the dustbin however- we could just as easily have a rerun of all of this again. Keep in mind- its not the first time that the Irish banking sector has gone titsup- its actually the third time- the first time was just after we joined the EU and had a speculative boom in agricultural land, the second time was the AIB and associated scandal of the 80s, and here we are today- with only one national clearing bank left effectively out of state hands........ What have we learnt? Nothing it would seem.......

interpoint

smccarrick wrote: »

I understand that investors who purchased these properties as tax avoidance measures are understandably furious- however the simple fact of the matter is that muttering about it being illegal, is simply not going to cut any ice with a populace who are just about ready to attack national politicians and councillors with pitchforks, burn bankers out of their homes and beat up anyone who admits to be a consultant or a public sector employee.

The whole purpose of S23 and S50 schemes was to improve the standard of rented accommodation, gentrification of run-down urban areas, and the provision of needed services where investors were unwilling to invest without an added incentive to do so....... It all worked perfectly well for almost 25 years- until the early '90s when all hell broke out.

I would seriously suggest that people need to check the voting records of their local representatives- and punish those who voted against the national interests of the country, at the ballot box.

Until such time as the clientèle'ism of parochial politics is confined to the dustbin however- we could just as easily have a rerun of all of this again. Keep in mind- its not the first time that the Irish banking sector has gone titsup- its actually the third time- the first time was just after we joined the EU and had a speculative boom in agricultural land, the second time was the AIB and associated scandal of the 80s, and here we are today- with only one national clearing bank left effectively out of state hands........ What have we learnt? Nothing it would seem.......

I agree with you 100%..

I would however say that the knock on effect is going to be deeper than you think. If thousands of mortgages suddenly stopped being repaid to the banks it would make the current crises look like a tea party.

This subject is getting more and more coverage in the national media.

For example:

http://www.sbpost.ie/news/ireland/landlords-angry-over-section-23-changes-53534.html

Great post smccarrick BTW..

The_Conductor

interpoint wrote: »

I agree with you 100%..

I would however say that the knock on effect is going to be deeper than you think. If thousands of mortgages suddenly stopped being repaid to the banks it would make the current crises look like a tea party.

This subject is getting more and more coverage in the national media.

For example:

http://www.sbpost.ie/news/ireland/landlords-angry-over-section-23-changes-53534.html

Great post smccarrick BTW..

Thanks.....

We already have a number of hotels and at least one hospital in NAMA- there are proposals in place to create a Management Section to deal with many of these properties, alongside a central expectation that the numbers of these type properties will increase as time goes by. The management structures of these properties are being left in place thus far, to try to maximise cashflow, irrespective of net debt servicing costs. It wouldn't be a massive stretch of the imagination to allow a similar scheme on a much lower level, for residential type properties.

I fully appreciate the calamity the banks are in- the mortgages of the S23 and S50 investors are not however going to be a make or break for them (particularly as they were fully securitised in many cases years ago). Even the mortgage on my PPR is owned by a US investment group (thankyou BOI......)

The readjustments of these schemes are going to hurt people on a personal level, yes, they certainly are. They are not a calamity for the country however- which is what the original poster asserted.

At the moment- the big issue is that we need to bring our budget more into balance than is possible by simply chopping expenditure (plus the government and the opposition parties simply don't have the guts to cut expenditure by the amount that is necessary on one hand, and to sweat assets such as ESB/Bord Gais- to maximise potential income, on the other hand). One pillar which has been reducing tax intake is these S23 and S50 investments. The whole raison d'etre of the schemes was circumvented years ago- hell we have more than 100,000 more hotel beds than we know what to do with- never mind vacant holiday villages in obscure rural locations that few people know how to get to......

Part of the winding down of the S23 and S50 reliefs has to be an action plan- where there is agreement as to what is ultimately going to happen to the properties in the various schemes- this lack of a clear decision on what to do with these properties, which would include how to address the current titular owners of these properties, is what is flawed- not the fact that the schemes are being wound up early.

Yes- its sad to hear of the retired teacher with his 3 properties who is now going to have to rely on the state in his or her twilight years- or indeed the guy from Monaghan who wouldn't otherwise have bought these properties. The fact of the matter is they did buy them- and ultimately are going to suffer because of the fact. Indeed- totally aside from the S23 and S50 properties- anyone who bought property since 1993-1994 is going to suffer......... (the overhang alongside an acceleration in net emigration will easily drive prices down to this level, particularly when increased interest rates get factored into the equation).

Personal bankruptcies are already at an all-time high- the cute people are nipping over to the UK and declaring bankruptcy there instead (as they will only be under court supervision for 3 years, versus the 12 years here). Personal bankruptcy is part of the solution- however we need to reform our Victorian era laws (we still have debtors prisons on our statute books- which seems ridiculous in this day and age).

In any other country- bankruptcy is allowed as a solution to a problem- and indeed is a manner to both cleanse tarnished balance sheets and also allow people a fresh start in a timely manner, after they make silly mistakes. Even Donald Trump has been personally bankrupt a number of times.

People keep wondering why we have very little risk culture here, people aren't willing to put their necks out and take chances that might have massive possible returns- the simple reason is 12 years is a fair chunk of most people's lives, and entrepreneurs should not have this massive potential punishment hanging over their heads should any reasonable business action or inaction, turn sour.

So- yes, let people declare themselves personally bankrupt- but in the same vein, reform bankruptcy law, so these self same risk takers are free of their past history within a reasonable window, and when opportunities arise in the future, and ready to sit down and explore any possible avenues.

Our archaic attitudes in this country will very possibly take a bit longer to change- than our bankruptcy laws, but if the herd mentality and begrudgery towards risk takers, alongside our abolition of parochial politics occurs, who knows- perhaps the country may emerge stronger out of all this?

jmayo

interpoint wrote: »

Strange point of view. Go ahead and make that case to the thousands of tradesmen that were involved in the construction sector and the billions in direct and indirect tax that was harvested by the government during the past decade. You blame the investors for investing what is put in front of them. The government came up with the section 23 / 50 schemes and now wants to get out of it using retrospective taxation and an illegal act. When it comes to screwing up villages then I suggest you should complain to the local planning department.

Ah FFS you still think it was a great idea to subvert the economy to be a property building ponzi scheme, because it gave very high paid short term work to tradespeople, brickies, chippies, etc and brought in short term transactional taxes :rolleyes:
You don't appear to see the long term conseqeunces to the whole bubble ? :mad::mad:

It is always someone else's fault ehh ? :rolleyes:
Oh don't worry I have more than enough ire for the co councillors and local planners that allowed it happen in the first place.

But that does not mean I have any pity for so called investors who saw the properties as no more than tax writeoffs and even you admit that they were badly placed not standalone investments in the first place.

I read article in yesterday's SBPost about how one investor in Friends First property fund believes he shouldn't owe Ulster bank for the 200,000 loan he took out plus the deferred interest because they never realised they were personnally liable.
FFS when does it end.
You invested in an "investment" that had really no chance of making money bar it being a tax writeoff.

interpoint wrote: »

Again this is total rubbish. You obviously do not understand BES either. Most companies that receive BES investment do not give any return. If you have a tax bill of 50k and you back it with another 50k you can buy 100k's worth of a BES company. If the company does not perform you get nothing (paper shares worth zero).

Actually lots of BES schemes did provide some type of return, FFS even Jack L's career was a better investment than a section 23 in Leitrim.

interpoint wrote: »

You blame the investors again as if it is their fault there was a property bubble. Nothing is further from the truth... I suggest you ask your local politician why the economy was stimulated out of control.

Without investors who would have bought all these extra properties ?
Yes the government provided an atmosphere that was benefical to "investors", but most people knew from 2003/2004 onwards that proeprty investment in Ireland was a fools game as prices had become truly of bubble proportions.
Yet we had so called smart "investors" continuing to buy including the tax writeoffs.

To paraphrase Homer Simpson, it takes two sides for a bubble, one side to build/sell and the other to buy.

interpoint wrote: »

Again an irrelevent argument. Who do you think made all the material that went into the construction boom ? CRH ? Kingspan etc.. All perfectly happy to milk the Irish Celtic Tiger and get access to lowest Corporation Tax in Europe at the same time. Remember that there was more people employed in the Constuction industy during the height of the boom than there was in Agriculture. Nobody complained when all this was going on.

Ehh sunshine some of us did complain, but numpties involved in creaming it off or on the grqavy train to easy riches chose to ignore us.
BTW that is typical bubble proponent shi*e, now saying nobody complained.

interpoint wrote: »

Least of all the Government of the day. Now the chickens have to come home to roost and the Investors that made the boom possible are entitled to their pound of flesh.. Sorry but any act by the Government to slip out of this contract is a Criminal act against its own citizens.

Ahh the poor investors :rolleyes:
Youadmit it was a boom but you still appear to think it was a good thing ?

interpoint wrote: »

You really don't have a clue about the topic being discussed with comments like that

And I could counter you don't have much of a clue if your investment portfolio was dependent on tax writeoffs tagged onto investments that offer no return bar those tax writeoffs.

interpoint wrote: »

You should write a stongly worded letter to the local planning department or to your local FF poilitician and ask them to explain how they allowed this to happen. You seem to think that the Investors are the root cause. You are totally incorrect

My dear boy/girl if you think I believe "investors" are the root cause of our problems you haven't ever bothered reading any of my posts around here.
But I do think a fair chunk of "investors" were eejits who got very greedy and often did not have a sound business plan that did not rely on continuing above norm capital appreciation, tax writeoffs and continuing cheap credit sources.
When these positives were removed they are shown to have no jocks on.

Treehouse72

interpoint wrote: »

There are alot of confused emotions going on there. This topic thread is about the recent changes in the Budget regarding S23/50 properties and the knock on effect it will have. Please stay on topic.

Perhaps if you stopped wafflin' we might get some discussion in. You're a waffler - you've been years around these boards, wafflin'.

The_Conductor

Guys- less of the poking each other please.
Please keep ontopic, and civil towards one another.
If you'd like to veer in a different direction than is being discussed, please consider starting a new thread instead.

Regards,

SMcCarrick

interpoint

smccarrick wrote: »

Guys- less of the poking each other please.
Please keep ontopic, and civil towards one another.
If you'd like to veer in a different direction than is being discussed, please consider starting a new thread instead.

Regards,

SMcCarrick

SMcCarrick, The reactions expressed here are faily typical.

When I started this thread it was certainly not for the purpose of seeking any sympathy. I do understand there are many people that are far worse off and in the current economic climate most people don't really give a sh*t.

In fact, I believe that many people are actually happy that this has happened. This is typical Irish begrudgery at its best and I would have been niave to have expected anything different.

I fully understand that there is alot of anger out there and that this debate is going to be a tough one.

However, rudeness or condescending attitude expressed towards me or any individual really brings nothing to this debate and mis-directing any anger at me solves nothing (even if it just makes you feel better).

I do get the feeling that people think that I am some rich developer playing the poor mouth. I am actually quite the opposite with a very minor S23/50 involvement.

I do personally agree that S23/50 has many faults and was a major contributory cause of the building bubble. However, that fact is not what I am debating.

I am debating the impact of the sudden removal of the S23/50 designation and the impact it will have on the economy (if any).

All I can contribute is my opinion and what impact it will have on me. Remember that I did not think up this scheme and am not responsible for any mis-management of it.

As part of this debate I also wanted to see if the general public at large understood the situation that thousands of individuals that got involved in S23/50 are now in.


As part of the debate I also wanted to see

1. At what level do people understand how these schemes work.
2. Why they were introduced.
3. How widespread they are.
4. How many and what type of people are involved in them.

My example of the investment in Leitrim was just anhypothetical example to illustrate that some Section 23's are in remote locations.

Treehouse72

My last post was a satirical cultural reference to former Taoiseach Bertie Ahern's outburst in the Dail at Jim Mitchell in 1994. Hence the italics. It was not meant as mindless abuse.

http://www.independent.ie/national-news/the-ahern-years/how-to-upset-the-apple-tart-and-survive-1356878.html

interpoint, you didn't answer my questions stemming from this post of yours:

Strange point of view. Go ahead and make that case to the thousands of tradesmen that were involved in the construction sector and the billions in direct and indirect tax that was harvested by the government during the past decade. You blame the investors for investing what is put in front of them. The government came up with the section 23 / 50 schemes and now wants to get out of it using retrospective taxation and an illegal act. When it comes to screwing up villages then I suggest you should complain to the local planning department.

A reminder of my questions:

1. Where do you think those "harvested billions" came from?
2. Is your suggestion for those unemployed tradesmen that we return to building 90,000 houses a year?

parsi

One of the major problems that is coming to the fore is that of "amateur investors" who thought that all they had to do was buy a property , leave it hang around for a while and then cream in the profit. However what these amateurs didn't factor was how to deal with hiccups - eg no tenant for 2 months, repairs, changes in tax reliefs.

I'd love to know how many of the mortgages that are in arrears are actually for 2nd/3rd (etc) properties rather than for the much prized family home.

Blackjack

Some recommended Reading, for anyone interested in Investors reaction to a downturn, including their own contribution to same.

antoinolachtnai

The thing is that s23/50 allowed investors to invest in projects that would not have been economically viable otherwise. The government promised to put up the shortfall through the tax break. Now the government has decided to step away and not provide the support it promised.

I am thinking of, for example, the high density development in Ballymun and Tallaght, the construction costs for which were only viable because of capital allowances. (For sure, there were other, bad projects that shouldn't have gone ahead.)

Why is it right for the government to cut and run when they were involved in promoting these projects?

If the collateral damage this will cause to banks is so small, then is the benefit of withdrawing these allowances really enough to be worth it?

In reality, any extra unforecast bad debt is a big burden for the banks. Every cent of it will have to be covered by the taxpayer. There isn't much winning in this for the exchequer.

Lots of people complain about property investors being imprudent, and that is certainly true for some of them. However, having the benefit the s23/50 provided prudent copperfastening and a safety net for many sensible property investors. It gave them protection against circumstances like property price falls, reduced rent and increased tax, and they specifically set it up that way. There is no way investors foresaw that the government would withdraw tax allowances, especially not in such a crude, blunt way, with no warning and no real wind-down period.

The amateur investors sometimes mentioned, who didn't understand Section 23/50, of which there were certainly many, won't suffer any loss as a result of this action, because they weren't going to get any benefit from the capital allowance anyway.

This doesn't effect really imprudent investors one way or the other. It only effects prudent investors who were benefiting from the tax benefit they got for investing in non-prime property. It will certainly drive some of these prudent investors over the edge.

The big problem for the government is reputation damage, i.e., if the government ever needs to promote projects through capital allowances again, investors will be very slow to get involved.

interpoint

Again I must stress that this is an IAVI (auctioneers representative association) response to the Budget 2011.

Before anyone goes "mental" and starts going on about the vested interests etc etc. It is nevertheless worth posting this into this debate. It does give a view point on the potential damage that could follow from the people in the business that sold these properties to others in the past.

This was posted on the IAVI members website and I acquired a copy. I am not a member of the IAVI and am not an auctioneer..

** Copy **

Dear Member
As you are aware, Budget 2011 provided for several measures directly relating to the property and construction industry.

Following on from requests from members of both organisations for further detail in relation to the changes to Section 23, Capital Allowances and Capital Acquisition Tax, Deloittes have prepared a special member briefing document outlining the impact of these changes.
You can download the member briefing note from Deloitte by clicking on the following link Deloitte Briefing Note - Budget 2011 Property Tax Relief Measures

PROPOSED IMPACT ASSESSMENT - IAVI/SCS JOINT SUBMISSION

In advance of the proposed ‘impact assessment’ on the property tax relief measures announced by the Minister in budget 2011, the SCS and IAVI have made a joint submission to the Department of Finance.
While both organisations understand that the economic environment means it is necessary to phase out property tax reliefs, it is important that these reliefs are phased out in a measured and equitable manner in order to create certainty, stability and confidence in the property market. A poorly executed management of the phasing of these schemes would have a very negative impact on financial institutions, pension holders, local Government and ultimately the tax-payer.
The submission outlines the areas which both organisations believe will be severely impacted should the proposed measures be introduced in their current format. While the full submission has been sent to the Department, a brief summary of some of the points outlined for the proposed 'Impact Assessment' include the following:

(1) Property Market Impact Assessment

The impact on the investor segment of the property market will be severe.

(i) Section 23
Given that the values of properties with section relief have dropped, the ability of distressed landlords to sell will be limited. This negative impact is compounded by the reduced likelihood of other persons purchasing these properties without the associated relief would be greatly diminished. There is, therefore, a real possibility that vacancy rates and defaults will increase in these developments leading to difficulties for the property market, investors, financial institutions, local Government, cities, local towns and villages.

(ii) Capital Allowances
The impact of the changes in the capital allowances on the funding of offices, hospitals, nursing homes and crèches will also be severe. Many of these important social, medical, commercial and economic facilities were developed and funded on the basis of the available capital allowances and were structured fundamentally on that basis.
Many investors who bought at the peak of the market have already contributed to the exchequer through payment of transaction charges such as stamp duty and VAT. Many of Ireland’s largest institutions hold property with capital allowances; the benefit of which forms an intrinsic part of their valuation. The proposed abolition of these allowances will immediately decrease the values of their portfolio. This will have a profound impact on Irish private pension holders.
The removal of these schemes will have an impact on properties held by NAMA. Many of the borrowers are unable to meet repayments already and this will restrict their ability further.

(2) Fiscal Impact Assessment

There is a real danger that the detrimental impact of the proposed budgetary measures on investors could lead to a significant volume of mortgage defaults with the financial institutions that provided funding for these projects. Many of the mortgages were provided on the basis of the section 23 tax reliefs and capital allowances and the removal of these allowances within the proposed short timelines may crystallize further losses to the financial institutions and ultimately the tax-payer.

(3) Planning Impact Assessment

The removal of these reliefs will result in increased difficulties for developers selling properties in areas requiring regeneration under the Integrated Area Plans and consequently the financial institutions financing such developments. The removal of these tax relief incentives will also result in significantly less development in areas requiring regeneration under the Integrated Area Plans. To date, the availability of property tax relief allowances have been a key driver for the transformation and increase in infrastructural investment in such areas under the Integrated Area Plans.

(4) Social Impact Assessment

A recent DoEHLG National Housing Development Survey identified 2,800 ‘ghost estates’ and has set about implementing measures to deal with the health and safety hazards associated with them.
Should investors default on mortgage payments and maintenance fees, there is a real possibility that some of these developments with section relief could also become ‘ghost estates’ and further compound existing difficulties currently being addressed by the Department of Environment.

Conclusion

The submission also outlined a number of recommendations including a phasing out of property tax reliefs on a tiered basis and allowing purchasers to retain some of the tax relief. This could be done on a phased basis in line with the phasing out of Mortgage Interest Relief and Rent Relief. This would provide distressed investors with a mechanism to sell. It would also facilitate transactions, reduce the likelihood of mortgage defaults and provide transactions for the creation of the proposed National Property Price Register.
Members of both organisations will be updated in due course in relation to this.

interpoint

Treehouse72 wrote: »

My last post was a satirical cultural reference to former Taoiseach Bertie Ahern's outburst in the Dail at Jim Mitchell in 1994. Hence the italics. It was not meant as mindless abuse...

Treehouse.. I now understand. I misread the context. I do remember that hilarious outbust by Bertie. Classic stuff.. Jim got him rattled that day.

Treehouse72 wrote: »

interpoint, you didn't answer my questions stemming from this post of yours:

A reminder of my questions:

1. Where do you think those "harvested billions" came from?
2. Is your suggestion for those unemployed tradesmen that we return to building 90,000 houses a year?

1. Where do you think those "harvested billions" came from?

The banks certainly encouraged the flow of money to anyone that would sign a piece of paper "with or without security"

We have all heard the stories of small investors going into the bank and asking for 200k and being told that it would be better if they took 300k instead as they could get instant approval for that amount. Crazy stuff. But true. It was a case of buy at all costs.

First time buyers were often on the receiving end as were many other sectors of society. I know one guy who sold his rural home (wife got sick and they needed to move closer to a Dublin hospital) just after Bacon III and had to pay 9% stamp and is now in negative equity. His origional home was mortgage free and now in his retirement he is back where he started mortgage'd to the hilt. There is nothing right about that...

It was an economy out of control. Nobody (including me) had the balls to stand up and say stop. In fact we voted for the same lunatics again and again and again.

Well the music has stopped and many people have been left without a seat. 90 Billions worth..


2. Is your suggestion for those unemployed tradesmen that we return to building 90,000 houses a year?

I am in total agreement with you that things were out of control. Fueled by greed and blind panic to buy at any cost (that you would somehow miss out on an investment of a lifetime etc..)

These levels were never sustainable. Developers built their first property and then rolled onto the second without fully realising the profits from the first and blind greed moving them onto the third and they still had not fully collected on the first two and it was now a cash flow game for them. They needed to pay people and needed the money from the next project to do it. It started to landgrab to keep the machine rolling. Prices rocketed. The rest is history. Two of the greatest motivators. Greed and Fear. Greed is the "Greed to make more money" and Fear is the "Fear of loosing out."

I do agree that section 23/50 was a root cause of the property bubble.

The market is a savage beast. The governement wanted to stimulate and the banks joined in and the beast got out of control. If someone tried to stop this at the height of the boom they were rediculed. Quote Bertie Ahern "For God's sake lads we'll talk ourselves into a Recession"

mastman

Hi All,

There is a meeting on Thursday in the Prince Hotel in Athlone starting at 7 o'clock sharp.

Please network with as many other effected as possible as it is crucial that there is a large number of people present to impress on the politicans present as to the implications of the changes.

The_Conductor

Just got the notice by e-mail (attached to this file). Bit childish of the two councillors to deliberately exclude reporting by RTE in my opinion.

Notice re the meeting attached.

S.

danbohan

mastman wrote: »

Hi All,

There is a meeting on Thursday in the Prince Hotel in Athlone starting at 7 o'clock sharp.

Please network with as many other effected as possible as it is crucial that there is a large number of people present to impress on the politicans present as to the implications of the changes.

hope they have invited imf / eu as well .

jimmmy

interpoint wrote: »

Section 23
Given that the values of properties with section relief have dropped, the ability of distressed landlords to sell will be limited. This negative impact is compounded by the reduced likelihood of other persons purchasing these properties without the associated relief would be greatly diminished. There is, therefore, a real possibility that vacancy rates and defaults will increase in these developments leading to difficulties for the property market, investors, financial institutions, local Government, cities, local towns and villages.

+1. People were encouraged by the govt - through the section 23 / 27 tax incentives - to invest in the Irish economy, give employment to people, improve the standard of rented accomodation in the country and provide income for their retirement ( rental income).

Some people did believe the government and invest in Ireland, often taking out big mortgages / loans to do so. The govt beneffited through all the taxes it got on the property being built.

Now those people have been kicked when they are down. The rules were changed during the game - the game they had to bet their shirt ( pension ) on.

Lets hope nobody invests in this country again and the people who get the government pensions and who have changed the rules, get their comeuppance.