Investor frenzy on the way

Muahahaha

Michael Noonan has said that he won't be extending the exemption to capital gains tax for property purchased since 2011 and, as a condition for the exemption, owned for seven years minimum. With property prices rising and CGT currently standing at some 30% investors are now likely to see between today and the end of the year the only time to invest in property. Once an investor hangs onto it for seven years their profits are then exempt from capital gains. That means that even a small investor buying a one bed apartment for €100k now expecting it to be worth €130k in 7 years will remain free of tax on his €30k profit, at 30% CGT it is a €9,000 tax saving over someone who buys a property in 2015 when the exemption is finished.

The exemption is a rare opportunity to prevent investment profits being taxed at 30% and now that the Minister has said the scheme is to finish at the end of this year I think we're going to see an investor frenzy in commercial and residential property markets. Recent rising prices coupled with the end of the CGT exemption is about to create a perfect storm IMO. The only thing that can constrict it is the availability of credit from Irish banks. International investors will have no such troubles.

TheDriver

except the small investor needs to take into account all the costs associated with holding that property and if it can be rented in the meantime. I wouldn't be expecting lots of interest in apartments in Rosscommon.

gmisk

Great...so that means even more madness in Dublin?

Muahahaha

TheDriver wrote: »

except the small investor needs to take into account all the costs associated with holding that property and if it can be rented in the meantime. I wouldn't be expecting lots of interest in apartments in Rosscommon.

Given that there hasn't been much interest in apartments in Roscommon while the exemption has been in force I doubt we'll see too much as the exemption ends. But in the main cities I'd expect to see an increase in activity between now and the end of the year. Many people have taken the view that recent property price rises are sustainable and will continue. Anyone who has decided that property is going to be their investment vehicle would be mad not to buy before the end of the year. Even if property prices only rise by a modest 20% over the next 7 years a purchaser of a €300k investment property would be liable for €18,000 in capital gains tax when they sell. The government taking a 30% slice of profits when you cash in for taking your own risks with your own money irks a lot of people so when there is an opportunity to avoid it then my guess is those investors who have been sitting on the fence will be getting down off it very soon.

marathonic

Muahahaha wrote: »

The only thing that can constrict it is the availability of credit from Irish banks. International investors will have no such troubles.

The problem is that international investors will usually have CGT liability in their own country.

For example, investors in the UK usually pay CGT at 20%. If they sell an Irish property, they pay Irish CGT and get credit for that against their UK CGT liability on the same property. As Irish CGT is 33%, not 30% as mentioned in the OP, the UK liability will be zero.

If a UK investor purchases an investment property in Ireland this year and sells in 7 years, their Irish tax liability will be zero. Therefore, they will be liable to UK CGT at 20% with no credit for tax already paid.

It's still a good deal because a UK investor will pay a maximum of 20% instead of 33%, but it's not as good as you might first expect.

Villa05

The, bubble meets the pin. Suck in the last few fools before it all goes south again. Intresting that bank of irelands sugar daddy sold a third of his stake in the bank recently. I wonder was he privy to this change of policy from the government

Muahahaha

Villa05 wrote: »

The, bubble meets the pin. Suck in the last few fools before it all goes south again. Intresting that bank of irelands sugar daddy sold a third of his stake in the bank recently. I wonder was he privy to this change of policy from the government

Yeah I was scratching my head when Wilbur Ross sold his BOI holding and cut loose. The banks have stress tests on the horizon and so perhaps Wilbur Ross saw bad news coming down the line ?

Anyway we had a flurry of buyers trying to buy at the end of 2012 before the changes to mortgage interest relief. I'd expect the same type of activity for investors before the end of this capital gains exemption. The first six months of 2015 will be an interesting time in the property market once this tax break has disappeared, with investment money all spent to make the deadline the first 6 months of 2015 could turn out to be a sweet spot for first time buyers to purchase.

marathonic

Muahahaha wrote: »

The first six months of 2015 will be an interesting time in the property market once this tax break has disappeared, with investment money all spent to make the deadline the first 6 months of 2015 could turn out to be a sweet spot for first time buyers to purchase.

It'll be interesting to see how it plays out.

If the second half of this year doesn't see further prices rises, next year could see some pretty hefty price falls.

If the second half shows further price rises, there may be small drops early next year - but I don't see these wiping out the aforementioned gains that were made this year.

Villa05

From this weeks meetings with the banks it seems to be accepted that 6000 reposseions are likely from the current crop of arrears cases being processed and that is from only 4 banks

gmisk

I definitely think a lot of the bids going in at the minute are investors.
For example, I looked at the house below
http://www.myhome.ie/residential/brochure/111-o-reilly-avenue-ceannt-fort-mount-brown-south-city-centre-d8-dublin-8/2782611

Its already got offers over asking price.....

Ipro

marathonic wrote: »

The problem is that international investors will usually have CGT liability in their own country.

For example, investors in the UK usually pay CGT at 20%. If they sell an Irish property, they pay Irish CGT and get credit for that against their UK CGT liability on the same property. As Irish CGT is 33%, not 30% as mentioned in the OP, the UK liability will be zero.

If a UK investor purchases an investment property in Ireland this year and sells in 7 years, their Irish tax liability will be zero. Therefore, they will be liable to UK CGT at 20% with no credit for tax already paid.

It's still a good deal because a UK uinvestor will pay a maximum of 20% instead of 33%, but it's not as good as you might first expect.

So if an Irish resident purchased an investment property in the uk they would pay no CGT ?

If I remember uk law says you have to pay capital gains to where you are resident. So you would be paying it to the Irish government and eligible for the exemption ? Or does the investment property have to be located in Ireland ?

Muahahaha

Ipro wrote: »

So if an Irish resident purchased an investment property in the uk they would pay no CGT ?

If I remember uk law says you have to pay capital gains to where you are resident. So you would be paying it to the Irish government and eligible for the exemption ? Or does the investment property have to be located in Ireland ?

My understanding of the CGT exemption is that it applies to Irish tax residents buying property anywhere within the EU. AFAIK that's because the government can't be seen to be favouring tax breaks for Irish property alone, that would be a form of state support for the Irish sector alone, they had to make it EU wide. So it is likely the case that any Irish investor who was thinking of a property investment within Ireland, the UK or the rest of the EU, will go ahead and do so before the end of the year deadline. It could distort the small investor/one property market as this group are more likely to buy something within Irish borders, even when property in certain areas of the UK would appear to be a safer bet right now IMO.

Either way I think that come Jan 2015 it will be safe to say that much of the cash buying we have seen of late will begin to decline.

gaius c

Muahahaha wrote: »

My understanding of the CGT exemption is that it applies to Irish tax residents buying property anywhere within the EU. AFAIK that's because the government can't be seen to be favouring tax breaks for Irish property alone, that would be a form of state support for the Irish sector alone, they had to make it EU wide. So it is likely the case that any Irish investor who was thinking of a property investment within Ireland, the UK or the rest of the EU, will go ahead and do so before the end of the year deadline. It could distort the small investor/one property market as this group are more likely to buy something within Irish borders, even when property in certain areas of the UK would appear to be a safer bet right now IMO.

Either way I think that come Jan 2015 it will be safe to say that much of the cash buying we have seen of late will begin to decline.

It'll will only become safe to say that once we flush the last of the lump-sum receiving early-retirement public sector workers out of the system.