Thursday, 16 December 2021
Ceisteanna Eile - Other Questions
Real Estate Investment Trusts
101. To ask the Minister for Finance the number of existing residential housing units that have been acquired by real estate investment trusts, REITS, and Irish real estate funds in each of the years 2018 to 2020, by county; his views on whether the tax advantages provided by both tax structures are justified with respect to the acquisition of existing dwellings; and if he will make a statement on the matter. [62339/21]
123. To ask the Minister for Finance the number of existing residential housing units that have been acquired by real estate investment trusts and Irish real estate funds in each of the years 2018 to 2020; his views on whether the tax advantages provided by both tax structures are justified with the respect to the acquisition of existing dwellings; and if he will make a statement on the matter. [62371/21]
130. To ask the Minister for Finance the number of existing residential housing units that have been acquired by real estate investment trusts and Irish real estate funds in each of the years 2018 to 2020; his views on whether the tax advantages provided by both tax structures are justified with the respect to the acquisition of existing dwellings; and if he will make a statement on the matter. [62365/21]
141. To ask the Minister for Finance the number of existing residential housing units that have been acquired by real estate investment trusts and Irish real estate funds in 2018, 2019 and 2020; his views on whether the tax advantages provided by both tax structures are justified with respect to the acquisition of existing dwellings; and if he will make a statement on the matter. [62330/21]
Can the Minister of State tell this House the number of existing residential housing units that have been acquired by REITs and real estate funds in each of the years from 2018 to 2020? I would also like the Minister of State’s views on whether the tax advantages provided by the tax structures for both are justified with respect to the acquisition of existing dwellings, given the extreme housing crisis we have.
I propose to take Questions Nos. 101, 123, 130 and 141 together.
Institutional investment in the commercial and residential property market continues to be critically important to ensure the ongoing supply of new housing. This is particularly the case in areas where there are viability challenges, in the area of high-density urban apartments for example. As with investment funds generally, tax occurs primarily at the level of the investor rather than within the fund and it is important to make that point. That is what most people would want. The end beneficiary should pay the tax, not the intermediary which is just the investment fund. It pays tax as well but the beneficiaries should be caught for most of the tax, as is currently the case.
Additionally, in the case of both Irish real estate funds, IREFs, and REITs, withholding taxes apply on distributions to investors to ensure collection of tax revenues. In 2019, I made a number of significant amendments to both regimes to ensure appropriate levels of tax are paid by investors in Irish property. Due to the small number of market participants within the REITs regime, and to protect taxpayer confidentiality, I am advised by Revenue that it is not possible to provide data with respect to the residential holdings of REITs. On IREFs, I am advised by Revenue that is not possible to provide data on the number of residential units acquired by IREFs in a year, or whether these units were existing dwellings, forward purchases or forward funding. However, I am advised that IREFs invested approximately €2 billion in residential assets in 2018; €3.5 billion in 2019; and €4.1 billion in 2020. A county breakdown of this investment is not available, with the exception of Dublin. IREFs invested approximately €1.9 billion in residential assets in Dublin in 2018; €3.1 billion in 2019; and €3.5 billion in 2020.
Notwithstanding this increased activity, it must also be recognised that institutional investors still account for a relatively small share of the residential housing market. According to the latest available CSO data, the real estate sector, a close proxy for institutional investors, accounted for just 3% of the purchases of all dwellings in 2020 and 6% of the purchases of new dwellings. According to CBRE Group, investors owned approximately 19,500 properties in 2020, accounting for less than 1% of the total housing stock.
In response to a previous question I mentioned that mortgages for private individuals this year alone were at their highest levels since 2008. So far this year the mortgages raised by people in this country have been worth €7.2 billion. When we add on the ambitious Housing for All programme with local authorities and approved housing bodies, people will see that the overwhelming majority of houses being built in the State are either provided through social housing by local authorities or approved housing bodies or through people getting their own mortgages, using the various schemes out there such as the help to buy scheme. The vast majority of houses are being purchased exclusively with beneficial ownership, be it the house owner, the local authority or the approved housing body.
The Minister of State will be aware that the CSO residential property price index report for October was published today. It shows that house prices across the State have risen by 13.5% annually. Families cannot afford to buy homes. As I have already told the House this week, there are families in Tipperary whose landlords have given them notice. They are looking to a rental market that is either non-existent or overpriced. The Minister of State will be well aware of the price of this starvation of the overall residential property of the market that has resulted from the advantages that continue to be given to these trusts and funds. In many areas of the country, these are contributing to the shortage of housing available because many are being sat upon with a view to increasing profits in the future, putting them further out of the reach of families. This is what we know about; what about the areas we do not know about? Can the Minister of State honestly say that the tax advantages continuing to be enjoyed by these funds are helping Irish families to get a roof over their heads? The Minister of State’s office, as well as mine, is getting those requests every week.
The Minister of State just said that the funds pay tax as well but they do not. They pay no corporation tax or capital gains tax. I have a quote from the Minister of State from an RTÉ Radio 1 interview he did earlier this year. He said that on any profits being made there is a tax of 20% or 25% depending on the structure and that any profits they make are taxed at a higher rate: "double the rate of corporation tax" as the Minister of State put it. We have looked at the figures and the Minister of State’s statement simply was not true. The figure of 17.9% the Minister of State was citing was relative to the taxable event, meaning distributions to shareholders; it was not relative to rental profits. In 2019 tax paid by IREFs relative to pre-tax profit was 9.1%, which was less than the 25% paid by any other landlord and less than the 12.5% paid by any other company. Furthermore we know these funds pay no capital gains tax or corporation tax whatsoever. The Government’s defence of these funds snapping up homes at the expense of renters and struggling home buyers is that they stimulate supply. However, the financial stability review published by the Central Bank last month found that the majority of residential units purchased by investment funds were existing and not new stock. That point was made on page 70 of that review.
I thank the Deputies for continuing to raise this issue. The essence of my point all along has been that the beneficial owners are the people who pay the tax by and large. The VAT and other small taxes are paid directly by the fund. There is a strong withholding tax regime in place for the transfer of funds.
For example, in the Irish REITs market, including Hibernia, IRES and Newgrove, the amount of gross dividend withholding tax paid was €15.3 million in 2021; €13.4 million in 2020; and €12.2 million in 2019. These are very substantial figures that are worthy of mention. Individuals are also liable to tax at their marginal tax rates over and above the withholding tax rate. Corporates are liable to tax at 25%, with credit for dividend withholding tax. Institutional portfolio investors are liable to tax on their REIT dividends at 12.5%, which is the rate generally applicable to trading income.
As I mentioned, the overall issue is housing supply. The €7.2 billion in mortgages issued to private individuals this year is a record and the highest it has been since 2008. The amount of funding going into local authority housing, social housing and approved housing bodies is hugely significant. In the vast majority of cases, the beneficial owners of the new housing being built will be private individuals, local authorities or approved housing bodies and only in a minority of cases will the beneficial owners be these funds.