Originally published in the Sunday Business Post, September 23 2012
We know more about the property market this autumn than we have for quite a while, but there are still plenty of known unknowns
As the details for Budget 2013 are being drip-fed to the people, the level of public anger and frustration is rising. One over-whelmed buyer I spoke with this week asked me to answer in one word “Is now a good time to buy?” This is a loaded question, usually, I cannot in a single word but to this man, I could say yes. I could say yes because we know more about the market this autumn than we have at any time over the last few years. We know that property tax is coming and we know when. We even know vaguely how much. We also know that the current mortgage interest relief scheme is unlikely to be extended, despite speculation.
Other uncertainties remain, like real house prices and genuine levels of activity, however, with the property price register expected within the next four weeks, progress is being made. I have always maintained that uncertainty stalls a market quicker than any other factor, including increased taxes. Ireland has one the least transparent markets in the developed world and while it does not repel buyers and investors, it definitely increases their risk when buying.
Property tax more of an issue for homeowners than buyers
Within the last week, we learned that the property tax will be self-assessed. It will involve the Revenue sending every homeowner a checklist of sorts, expected to include the same information fields as the new national property price register. The Minister had previously stated that the new register would not form the basis for calculating the value of property but this is naive and entirely unrealistic, of course it will. Otherwise, homeowners would be using property sales websites to value their homes and this does not make sense. Property sales websites capture the asking price of a property. This price may well be strategic, i.e. priced highly to leave room for a negotiated discount, or low to attract multiple bidders. A few years ago, houses were selling at 15 to 30 per cent below asking their prices, today, it is not unusual for a house to exceed its asking price by 5 per cent. That’s a pretty big margin for error. Homeowners may also get a professional valuation, which will effectively add €125.00 to the cost of the tax. In the current market, it is likely that even professional valuers would differ in their opinions. The government have also indicated that there will be ‘severe penalties’ imposed on homeowners who are found to have under-estimated their property value. This seems incredibly unfair when the state and even property professionals have difficulty doing this. The banks incorrectly valued Irish property for a decade and they were not penalised for doing so. Revenue will need to take a light hand at enforcing this, or at the very least, a flexible approach to the value bands (yet to be announced).
We know that the Revenue Commissioners are already collecting data from local authorities, including the property details of those who have already registered for and/or paid the controversial Household Charge, implemented in Budget 2012. This was one of the fears that homeowners had about registering for the charge, and while we were assured it would not happen, it is clear now that those compliance citizens who have already paid their Household Charge will be first in line to received their bill for property tax.
This is fast becoming more of an issue for existing homeowners than buyers. Most buyers will have been expecting the introduction of the tax and will take some comfort that the cost is likely to be half that which was speculated. The average tax bill is likely to range between €250.00 to €400.00 per year. A cynic might suggest that the rate of 0.5 per cent was floated to test public reaction, a symptom of the lazy policy making we have seen of late. The rate, although not confirmed, is now expected to be 0.25 per cent. This will come as a relief to new buyers, who wish to buy now and take advantage of the current mortgage interest relief before the end of the year. Unfortunately, it does not answer any of the bigger questions, such as exemptions for those who already paid high levels of stamp or how to address the issue of negative equity fairly. The devil, as always, will be in the detail.