Paschal Donohoe (Dublin Central, Fine Gael) | Oireachtas source

Amendments Nos. 109, 110 and 111 are grouped together and I will speak to each of them in turn.

Turning first to amendment No. 109, as the Deputy is aware, earlier this year I introduced a special 10% rate of stamp duty to apply to the purchase of ten of more houses in any 12-month period by any person or corporate entity. This rate came into effect from 20 May 2021. The new rate does not apply to the bulk purchase of apartments and is subject to a number of other exemptions for social housing purposes.

This measure was complemented by guidelines introduced by the Minister for Housing, Local Government and Heritage under section 28 of the Planning and Development Act 2000 (as amended) Regulation of Commercial Institutional Investment in Housing. The purpose of these guidelines is to ensure that own-door houses and duplex units in housing developments are not bulk-purchased by commercial institutional investors in a manner that causes the displacement of individual purchasers and-or social and affordable housing, including cost-rental housing.

It is too early to evaluate how effective the stamp duty has been as a deterrent to institutional investors. However, on the planning front, there have been a number of instances where An Bord Pleanála granted permission for the developments of new housing estates in Dublin and Galway, subject to conditions that houses and duplexes can only be occupied by individual purchasers and cannot be first owned by a corporate entity. This is a significant development in response to the problem of housing estates being bought in bulk by investors.

As was acknowledged, I excluded apartments from the 10% stamp duty charge. The reason for this was that a key objective of this tax was to achieve a balance between addressing the issue of multiple purchases by institutional investors, while at the same time ensuring that the supply of financing is not undermined, particularly in the construction of new apartment developments. The rationale for this exemption was twofold. In order for apartment complexes to be built, it is necessary in virtually all cases for an institutional investor to commit, through a binding contract, to purchase all or part of an apartment complex on completion. This is a forward-purchase model and is usually entered into once planning permission has been obtained. The benefit of this approach is that it allows a developer to obtain the necessary funds through bank lending to finance the project. This financing could be unobtainable or more expensive in the absence of such a contract and there is, therefore, a risk that these apartments would not be built.

The Department of Housing, Local Government and Heritage has indicated that institutional investors are only likely to commit to such arrangements if they can be certain that, at a later stage, they will be able to sell these apartments. They are concerned that a 10% stamp duty levy would inhibit such a sale and, in turn, discourage such investors from participating in the financing of apartment complexes in this country. Therefore, this is an important distinction as in its absence there is a significant risk that developers might not participate in and might exit the apartment building market because such projects might no longer be viable, and an important element of our future housing strategy would be undermined.

The Government has done a lot to discourage the bulk purchase of houses this year through the tax and planning systems. It will be necessary to afford these measures time in order to evaluate their effectiveness. That is why I do not agree to the amendment that seeks to introduce a 17% stamp duty surcharge on the purchase of all residential property by corporate structures, including real estate investment trusts, REITs, and Irish regulated funds, IREFs.

Moving to amendment No. 110 and the issue of purchases of residential property here by non-residents. Deputy Doherty raised this issue with me last year during the passage of Finance Act 2020 through the House in the context of the UK having announced its intention to apply a similar surcharge from 1 April. The matter was considered by the TSG this year in its stamp duty paper. It included an examination of the potential benefits and drawbacks of introducing such a surcharge here. It found that it was not possible for Revenue to provide an estimate of the revenue that such a measure would generate, due to the fact that there is not a difference of treatment of non–resident taxpayers compared with resident taxpayers for stamp duty purposes when they purchase residential property. The report noted that additional, albeit unquantifiable, revenue could be generated from such a measure. It indicated that such revenue would probably be of small amount. It also suggested that such a disincentive to residential properties being bought as holiday homes by people not resident in Ireland could play a role in releasing housing supply for Irish purchasers, although those purchasers may themselves be acquiring a holiday home or investment property.

The TSG paper acknowledged some potential drawbacks, specifically a possible conflict with free movement regulations if a surcharge were applied to EU residents; a possibly negligible revenue gain if numbers of such acquisitions are low, particularly in light of the potential increased regulatory burden on Revenue and others involved; and the possibility of it acting as a disincentive for workers with valuable skills seeking to relocate to Ireland, while still maintaining tax residency in another country. The UK introduced the 2% stamp duty tax surcharge on 1 April, and I will certainly follow the effect of this. At present, I do not have any relevant data to allow me to form a view in that regard.

Given that the matter has just been considered by the TSG, a report is merited, which is why I do not accept the Deputy’s amendment.

On amendment No. 111, there are a number of distinct components to the report being sought and I will speak to each of them. First, we all acknowledge that remote working has become a feature of this pandemic and is likely to remain, in some form at least, a part of working life into the future. However, at present, we are still in the midst of the pandemic and it is too early to get a clear perspective on how remote working patterns will impact on the commercial property sector over the longer term. More time is needed for this to become clear. However, I acknowledge that stamp duty receipts over the coming years are likely to give insight into how changing work patterns are affecting the sector. In this regard, the committee should note that such receipts fell from €537.64 million in 2019 to €407.6 million in 2020 – a fall of 24.2% in spite of an increase in the rate from 6% to 7.5%.

Second, regarding the impact of activity in commercial property on labour supply, this matter has been raised in the past and I have acknowledged the merit in this as a rationale for changing the rate. While undoubtedly there are some construction roles and skill sets that can transfer smoothly between both residential and commercial property construction, many specialist roles exist for the various construction property types such as house, industrial and office. Even if the non-residential sector experiences a prolonged post-pandemic slowdown, putting aside the highly mobile nature of the workers involved, to get such workers to switch to the residential sector will likely require some retraining over time.

Therefore it is at least possible that a reduction in labour demand in the non-residential property sector may not necessarily result in a corresponding increase in the availability of workers for the residential sector, at least in the short term.

Third, the impact of increasing commercial stamp duty has been examined a number of times in recent years and has resulted in commercial stamp duty increasing from 2% to 7.5% between budget 2018 and budget 2020. In the current economic environment, there will be no guarantee that increasing non-residential rates will generate additional revenue.

However, this area will be looked at as part of next year’s tax strategy group, TSG. I will have a better sense of the direction of travel of such stamp duty receipts at that time and will be in a better position to form a view on this matter. Given we are going to look at that issue through the TSG, I do not, therefore, propose to accept this amendment.