Pearse Doherty (Donegal, Sinn Fein) | Oireachtas source

I welcome the two amendments. We have discussed this at the finance committee. I have been raising the matter for a considerable period. I will say it again: the Minister needs to open his eyes to what is happening around him. I have told him time and again. I have been banging this drum for well over a year now in respect of what has happened in the property market.

We can talk about the results of the crisis and how it presents itself, but we must look at the source. Families are being outbid by what are called tax-efficient or tax-evading companies. Such companies have been allowed to operate while paying virtually no tax because of our tax code. They are able to outbid families in Dublin and elsewhere in the property market.

I have given the Minister the figures and I have gone through them time and again. I keep repeating different figures because the figures continue to get worse as time goes on. Let us consider the figure for non-household buyers. A large proportion of this figure is made up of REITs and IREFs. These groups purchased 42% of new homes in Dublin up to July this year. That figure compares to 25% of properties purchased by first-time buyers. Does the Minister for Finance believe that is appropriate? It is not only those on the left who are saying it. Stockbrokers are coming out and calling for penalties on non-household buyers for outbidding and out-purchasing families who want to purchase homes.

The Government is allowing this to happen. Nearly half of all properties in Dublin are bought up by real estate investment trusts, REITs, and Irish real estate funds, IREFs. In addition, 13% of all homes in the State are bought by non-household buyers. When we strip out local authorities and approved housing bodies, the figure falls to 10%. We estimate that the national figure for 2017 will be higher again. It is an absolute disgrace that these tax avoiding structures are pushing up house prices by increasing demand for property. They have the fire-power to buy off large tranches of housing resulting in ordinary families being outbid and pushed out of the market. They can only dream of having a home.

A number of steps must be taken immediately. We must change the way in which these tax avoiding structures operate, remove their competitive edge and set a minimum amount of tax they must pay to protect the tax base. One immediate measure would be to increase dividend withholding tax for non-resident investors to 25%, with no reductions available. We should also abolish the capital gains tax exemption on properties sold while proceeds are kept within the fund.

The Minister of State, Deputy D'Arcy, described REITs as long-term investors when he appeared before the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach. Jesus, but Hibernia REIT blew a big hole in that argument when it stated it may sell some of its property assets. Funds are not long-term investors. Hibernia REIT's rental income increased by 31% in the first half of 2016 and has been increasing by more than 50% in different periods. According to its chief executive, Mr. Kevin Nolan, it is considering selling some of its properties to other investors should the right opportunity arise. Deputy Mick Wallace is correct. The Ministers should read the book NAMA Landto see how some of these structures were set up, the inside information and all of the rest.

REITs are able to sell off property and the State, through the finance code, is incentivising them by having no capital gains tax, CGT, within the fund and allowing them to flip assets for massive profits and reinvest this money tax free to expand their holdings. That is what is happening.

I asked a number of questions in the joint committee, including on the 85% minimum the REITs must disburse as dividends. I also asked how their income was calculated. It is clear that, for example, with regard to deductibles, when computing their annual property income - this is crucial because not less than 85% of this must be in distributions - local property tax, remuneration, including bonuses, which is an absolute scam within the REITS, asset manager fees, which is another scam to ensure the 85% is reduced, are all deductible or may be written off.

I have done an analysis of the accounts of REITs, all of which are published, in every year, including 2017. I put to the Minister again that 85% of REITs are foreign owned because they are structured in order that foreign capital can buy up our assets in a tax efficient manner. It is an absolute scandal that the Government is allowing this to happen. Fianna Fáil needs to start to flex its muscles on this issue which is having a major impact on the property sector.

Let us consider the three REITs operating here. In 2016, their combined value was €2.637 billion and their profits, including their asset value, was €329 million. As part of this, they made rental profits of €117 million, on which they paid €8 million, or 8%, in dividend withholding tax. When we consider all the profits recorded in their accounts for the same year, the effective tax rate paid was 3%. The three REITs paid €8 million of tax on the €329.1 million profits recorded in their annual reports. It is a scandal that the Government is allowing this to happen. The 2017 accounts are worse because the total value of the three REITs was more than €3 billion with Hibernia REIT having a value of €1.2 billion, Green REIT having a value of €1.3 billion and the other I-RES REIT having a value of €480 million. The dividend withholding tax paid on their profits continues to be 3%, which is pathetic. All of this is done because of the double tax treaties and so forth.

We must apply capital gains tax within the fund, increase the dividend withholding tax and no longer allow for the deductibles that currently apply. The Minister must start to penalise these non-household funds for outbidding people who want to put a roof over their heads and call it a home.

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