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

I present this evening a financial resolution on stamp duties. Its purpose is to amend the Stamp Duties Consolidation Act 1999 through the insertion of a new section, 31E, titled "Stamp duty and certain acquisitions of residential property". It does this by imposing higher stamp duty charges on multiple purchases of residential units to take effect from midnight tonight. It is one part of the Government's response to the recent development of commercial institutional investors bulk-purchasing homes at or near completion in competition with the owner-occupier market.

The other significant element is the Minister of Housing, Local Government and Heritage, Deputy Darragh O'Brien's decision to issue new planning guidelines requiring that all houses other than those already ring-fenced for social and affordable housing will have to be made available for sale and first occupation by separate individual households for a period of a year after completion. The Minister, Deputy O'Brien, is dealing with this matter.

These measures are part of the Government's broader commitment to improving the supply of housing and affordability for first-time buyers, which has included to date bringing forward significant measures such as the Affordable Housing Bill 2021 and the Land Development Agency Bill 2021.

These measures stand as part of an overall housing strategy which provides the highest ever budget for housing in the history of the State of €3.3 billion to support the social housing needs of 28,500 additional households.

The background to this resolution is the purchase by institutional investors of all or a significant proportion of residential housing estates, in particular, close to the time of completion. The new higher rate of stamp duty proposed in this resolution is intended to provide a significant disincentive to this practice of multiple purchase by investors of large parts of housing estates or whole housing estates before they reach the market, thus denying first-time buyers an opportunity to purchase a home.

In summary, the legislation will introduce a new 10% rate of stamp duty to apply where a person purchases ten or more houses within a 12-month period. It may apply to a single book purchase, but may also apply in cases where ten or more houses are purchased across a number of different transactions in a 12-month period. Once the threshold of the tenth house is passed, the higher 10% rate will apply on all houses purchased in the period, including the first nine.

A key objective of this proposal is to achieve a balance between addressing the issue of multiple purchases by institutional investors while, at the same time, ensuring the supply of financing is not undermined, especially for the construction of new apartment developments. It provides a specific exemption from this higher stamp duty rate for the multiple purchase of apartments at any time whether, for example, the apartments are being bought at planning permission stage or at another stage in the future. The rationale for this is 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 some of a complex on completion. This is known as the forward-purchase model and it 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. The financing would be unobtainable in the absence of this forward-purchase contract and therefore 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 a forward-purchase agreement if they can be certain that at a later stage they will be able to sell the same apartments. A key concern raised, which I share, is that a 10% stamp duty levy would inhibit such a sale and, again, thus discourage such investors from participating in the financing of apartment complexes. This is an important exemption, as in its absence there is a significant risk that developers would exit from the apartment building market, that projects would no longer be viable, and an important element of our future housing strategy would be lost.

Research carried out by my Department indicates that the financing problem for own-door housing in traditional housing estates is much less significant. The household buyer market for houses is sufficiently deep and this, combined with the flexibility to develop and sell in phases, reduces the risk premium on funding from traditional sources such as the pillar banks. Moreover, as this measure is specifically targeted to ensure a greater supply of houses is available for families and for individuals to live in, the application of the stamp duty charge to all large purchases of houses, including forward-purchase agreements, is essential in delivering on its purpose.

It is also important to recognise that some multiple purchases of property are undertaken by bodies specifically for the purpose of providing social and affordable housing. It is not intended to apply the higher stamp duty rate in these instances. Therefore, the higher rate will not apply to local authorities, affordable housing bodies and the Housing Agency when they engage in multiple-purchase transactions. Other social or affordable housing arrangements will be considered as part of the legislation which will be brought before the Houses in the next few months to permanently underpin this resolution.

I will now outline the key elements of this measure. The higher stamp duty rate will be 10%. It will apply to multiple purchases of ten or more houses in a 12-month period. As mentioned already, apartments in apartment buildings are fully exempt from this higher stamp duty rate, as are multiple purchases by local authorities, approved housing bodies and the Housing Agency. While the higher rate of stamp duty will apply automatically to all bulk purchases of ten units or more, it will also apply on a cumulative basis where, for instance, a person is purchasing regularly on a unit-by-unit basis. This is an important safeguard, as otherwise the policy intent of disincentivising multiple purchases could be circumvented through a series of smaller purchases. The higher stamp duty charge would therefore take effect once the tenth property is purchased in a 12-month period. This means that where a person or institution has purchased incrementally and reaches the threshold of ten, the higher stamp duty will apply to the other previous nine purchases also. In such a situation, where the standard stamp duty rate has been already been, this payment will be offset against the amount due under this new charge. It will apply to all Irish dwellings that are acquired, other than apartments, regardless of location. That is, it will apply where there are multiple dwellings in one estate or single dwellings in different locations across the country. It will also apply in circumstances where multiple purchases of residential units are made indirectly through shares or units of companies, investment funds and other entities that hold residential property.

There will be a three-month transition period for execution of binding contracts that have been entered into but not completed prior to the commencement of the resolution. This is provided for normally on the introduction of new taxes or increases of rates on transfer of land and this has been included in this measure on the advice of the Office of the Attorney General. Similarly, units purchased before the resolution comes into effect have been counted towards triggering the threshold of ten, but higher stamp duty rates can only apply to units bought after the introduction of the financial resolution. For example, if six units were bought in April and five units are bought in June, the April purchases would enable the higher stamp duty rate to be applied to the June purchases but not to reassess the stamp duty chargeable on the April purchase.

As indicated earlier, the new stamp duty rate of 10% is designed to disincentivise the multiple purchase of houses by large investors and purchasers. When combined with the complementary measures introduced by the Minister for Housing, Local Government and Heritage on planning, this should ensure greater availability of houses for purchase by individuals and families. I believe the 10% rate is at a sufficient level to discourage institutional investors from participating in the market for houses and to direct available capital to apartment developments where viability challenges are more significant and this capital is critical in increasing the supply of homes.

The Government is well aware of the complexity of the property market, as housing policy must balance the needs of all tenures – private rental, private ownership, affordable or cost rental and social housing. As part of this balance I believe investors have a particular role to play, as they bring an added source of finance to the market. The bottom line, unfortunately, is that there are now two remaining Irish pillar banks and one other bank and these are limited in their ability to finance large property developments without either co-financing from investment funds or the de-risking of the project through a binding contract for the forward purchase of a development in its entirety or a large section of it. In their absence, activity in the housing market would be much reduced and this would increase the already significant pressure facing both renters and prospective homeowners.

Institutional investors are a long-term presence in the Irish market, as in all other property markets, but I have clearly stated on many occasions that where such investments bring a profit, a fair share of tax must be paid. In recent Finance Acts I have made significant changes to the taxation of institutional investors in Irish property to ensure appropriate tax is collected.

As with investment funds generally, tax for these investment entities occurs primarily at the level of the investor rather than within the fund. In the case of both Irish real estate funds and real estate investment trusts, withholding taxes apply on distributions to investors to ensure collection of tax revenues.

The tax treatment of these investment vehicles is kept under review, most recently in a 2019 analysis produced for the tax strategy group. This led to the introduction of additional anti-avoidance measures in the Finance Act 2019, aimed at ensuring the regimes operate as intended and at preventing the avoidance of tax on property profits. This has resulted in a significant increase in the tax take from investment funds.

In conclusion, I reiterate the importance of the passage of this resolution. Its purpose is very simple, namely, to disincentivise the multiple purchases of houses through the imposition of a higher stamp duty rate, in order to increase opportunity and availability for individuals and families. As Members are aware, a financial resolution is required whenever a charge is imposed upon the people which will impact at any time before the planned legislation that will provide for it becomes law, thus explaining why it has been put forward this evening. I inform the House that I propose, through legislation, to place this resolution on a permanent statutory footing in the next number of weeks. I hope the House will support the resolution this evening.

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