Paul Coghlan (Fine Gael)

I welcome the Minister of State, Deputy Noel Ahern, to the House and look forward to hearing what he has to say on this matter.

I am happy to introduce, in conjunction with my colleagues, Senators O'Toole and Ryan, the Housing (Stage Payments) Bill which is designed to abolish the practice of stage payments for certain types of newly-constructed houses, thereby reducing the cost to consumers of such housing and eliminating the risks associated with such practices.

Stage payments mainly arise in the case of houses built in housing estates whereby their purchase is funded through stage payments. However, the system only operates in a few counties and does not, I understand, exist in Dublin or most of Leinster. Nowadays purchasers in these areas pay for the construction of newly-built houses with a 10% contract deposit and the payment of the 90% balance on final completion. This system is open and transparent, as it should be, with the purchasers being fully aware at the outset of the extent of their liabilities, thus enabling them to budget accordingly.

Sadly, in some parts of the country the practice of purchasing newly-constructed houses in housing estates by stage payments endures. This Bill seeks to abolish this practice on the basis that it adds to the purchasers' costs of buying such new houses and introduces significant financial risks for the purchaser in stage payment contracts.

The stage payment system in estate-type housing purchases is unfair as it involves the preponderance of risk in the construction of new houses in housing estates being carried by the purchasers rather than the builders. Similarly, it involves purchasers accessing significant funding by way of mortgages before they are in a position to live in the house and before work is completed. They must draw down their mortgage before completion and thus service a loan before they can occupy the property. They are often involved in bridging finance for this process at excessive rates over the normal odds.

Where an individual purchaser arranges with a builder to construct a house, usually on a site that has been provided by the purchaser, then payment for this house by stage payments is perfectly normal and acceptable, given that payment of the cost of construction is made by the purchaser to the builder on foot of architects certificates after the various stages of construction have been completed. This practice is recognised, standard and well established. It is acceptable because purchasers are paying for building works that are already completed on their own site. In addition, it should be pointed out that section 3 of the Bill deals with variations and allows for stage payments for the construction of a house in an estate where the builder has varied the plans at the express instruction of the purchaser to suit his or her requirements.

I am grateful to the Minister of State for his letter of 16 June last regarding this Bill and perhaps it would be helpful if I now read this letter. It states:

Dear Senator Coghlan,

I write in relation to the Private Members Bill in your name that was published on 3 April last. I would like to inform you of the ongoing dialogue that is taking place in relation to the practice of stage payments for the sale of houses in new developments.

The Government are concerned to ensure that house purchasers are not disadvantaged by any practices that might make it more difficult or expensive to access a home. I am conscious of concerns that the practice of stage payments may be contrary to the interests of house-buyers in certain circumstances. While it is generally accepted that stage-payments may be warranted in the case of one-off housing, I do not consider that this is likely to be the case in the context of speculatively built estate housing.

My officials met recently with members of the Construction Industry Federation — Southern Region (CIFSR). At this meeting, our strong preference for an agreed approach leading to a voluntary phasing out of the practice of stage payments in speculatively built housing estates was put forward and it was acknowledged that an agreed approach on the matter would be preferable to legislation or regulation. The CIFSR were also made aware that the balance of opinion among public representatives and the general public appears to be against the practice of stage payments in speculatively built housing estates. Subsequent to the meeting my Department wrote to CIFSR reiterating our position on the matter and seeking an indication of a definite commitment on the part of the construction industry to a voluntary phasing out of the practice of stage payments in housing estates. The CIFSR response is awaited and we will be pursuing the matter.

The Government has kept open the possibility of legislation to prohibit the requirement to stage payments in house purchase contracts for speculatively built housing estates. In this regard the Minister for Justice, Equality and Law Reform published the Land and Conveyancing Law Reform Bill 2006 on 9 June 2006. The Bill is largely based on a draft Bill published with the Law Reform Commission's (LRC) report on the Reform and Modernisation of Land Law and Conveyancing Law, in July 2005. The Bill contains a general power for the Minister for Justice, Equality and Law Reform to make regulations in the area of contracts. The LRC report proposed inclusion of the regulation of stage payments in the context of a provision for regulation of the terms of contracts. Accordingly, the provision in the Bill for regulation of contracts may provide an appropriate mechanism for regulation of stage payments, should such an approach be considered necessary.

What I am working towards is obtaining a commitment, on the part of the whole industry, contained in a suitably formal instrument, to a voluntary phasing out of the practice of stage payments in housing estates. I would hope that this voluntary phasing out could take place over a period of, at most, twelve months with the CIFSR's cooperation in a manner that benefits both the consumer and the building industry.

Yours sincerely

Noel Ahern.

I am grateful to the Minister of State for that letter. He may have had a previous commitment when we dealt with this on 18 June 2004. He had hoped, and stated at that time, that he would have had the Government's legislation within six months.

The Minister of State and the House, I am sure, agree that this is a serious loophole in the law which leaves consumers at a distinct disadvantage in purchasing a house in a housing estate off a particular plan. In particular, it reduces their bargaining power, adds considerably to their cost and involves them spending up to 90% of the price of their house before getting possession of it. I am sure the Minister of State agrees that the country is far too small for the lack of uniformity which exists in this matter.

The practice, as I have stated, is wholly one sided and entirely anti-consumer. It is entirely inequitable that a consumer ends up paying up to 90% of the price of the house before getting possession of it. As a direct result of stage payments being demanded in such circumstances, purchasers end up paying their mortgage repayments well in advance of living in the house. This is grossly unfair, as I am sure the Minister will agree, particularly given that interest rates are still on the increase. The fact that the consumer has paid over the bulk of the purchase price of the house before completion inevitably lessens the consumer's bargaining power with the builder and provides little incentive for the builder to complete the project on time and to specification. It also involves transferring the financial risk inherent in the stage payments system to the consumer in addition to imposing unwarranted costs on him or her. This in unreasonable and incompatible with the ability of many consumers to carry such one-sided impositions.

When the forerunner of this legislation was first introduced on 16 June 2004, I referred to the Law Society's report on the matter, which was prepared by the eminent firm of accountants Peelo & Partners. It stated stage payments cost consumers an additional €7,000 each. The majority of additional costs come in the form of extra interest on obligatory payments drawn down before the consumer took possession of the house. In addition, certification and survey costs had to be met. When one considers that 25,000 new houses are built annually in the affected counties, the total cost to consumers is €75million per annum. It is rare that we can implement legislation that can have such a direct and immediate effect to benefit consumers. This Bill would alleviate a considerable burden for house purchasers and, accordingly, I appeal to the Minister.

Members will be satisfied that this loophole in the law is causing direct and avoidable hardship for consumers in house purchasing and we have a duty to rectify it. There is no justification for continuing the system of stage payments. It imposes additional costs, inconvenience and heartache on purchasers of houses where the practice is still prevalent. Furthermore, the Consumers Association of Ireland, in addition to the Law Society and the Law Reform Commission, is steadfastly opposed to the practice. It is a one sided practice, which offers no benefits to consumers. This measure, if adopted, could go a considerable distance towards helping first time buyers. Allowing stage payments to persist is to perpetuate a continued injustice against consumers. Accordingly, I commend the Bill to the House.