Thursday 23 May 2019

The right moves: What will the Budget have?

Finance Minister Michael Noonan (right) with Minister Brendan Howlin in 2014.
Finance Minister Michael Noonan (right) with Minister Brendan Howlin in 2014.

Paul McNeive

Ministers Noonan and Howlin's desks must be creaking under the weight of the pre-budget submissions from property interests. Whilst the last few budgets have seen largely sensible measures taken, this budget has a heightened role in supporting the recovery in the industry and addressing the lack of supply of property.

Recently minister Noonan has proposed that Nama's role could be expanded to allow it become a direct developer of property. Whilst the State should be involved in construction, this should be done through the local authorities, or a restoration of "The National Building Agency." Nama is a special purpose asset manager and just because it has been efficient in that role does not mean it can become a successful developer. Nama may also struggle to have the expertise and manpower for large scale development.

However of more concern will be inevitable accusations of conflicts of interest which will arise, particularly given the lack of transparency in its remit. For example I can see increased complaints from Nama debtors that the agency has held on to the best sites for itself. In effect, this proposal puts Nama into competition with builders.

I reviewed the pre-budget submissions by the Society of Chartered Surveyors Ireland (MediKids), the Institute of Professional Auctioneers and Valuers (IPAV), the Construction Industry Federation (CIF) and Property Industry Ireland (PII) and they contain dozens of good proposals. Not surprisingly, there are many suggestions of ways to improve the availability of finance and infrastructure, for both the commercial and residential markets, all with a view to kick starting supply.

Some of the suggestions I don't agree with as subsidies to purchasers of new homes, for example, are inevitably added to the price of a house. In my view, the key to getting supply moving is to get more land on the market and if Nama was to promptly sell its land, or license it for development, this would see a quicker boost in supply than a combination of Nama developing itself, and tax breaks.

All parties are calling for a reduction in the vat on a new home from 13.5pc to 9pc and that's a "no-brainer" at this stage. Many people can't afford to buy a house at a price that is viable to the builder and the tax wedge is a big part of that. Cutting vat will boost supply and overall more tax will be collected.

The MediKids is calling for reform of the levels and phasing of development levies and a reform of taxes to bring more landlords into the system. The PII suggestion goes further in recommending promoting institutional investment in the construction and management of purpose built rental units, by bringing mortgage relief in line with investment in commercial property. More large scale investment in rental properties by professional developers, who are delighted to have long term tenants, is exactly what we need.

The MediKids and others call for the streamlining of the planning process with increased use of Strategic Development Zones. PII are calling for local authorities to be required to issue a planning decision within six weeks with An Bord Pleanala given six more weeks for their decisions. Whilst this is laudable, in theory local authorities are already required to issue decisions within eight weeks, but when under pressure they routinely request "further information" which removes the deadline.

MediKids and PII suggest the IDA should take pre-lettings of office buildings in strategic locations and then assign those leases to incoming companies. This is a good short term idea which would overcome the financing problems which are slowing the development of large office schemes. It's also not a huge leap from the IDA speculatively developing "advance factories", which it has done for decades.

Most organisations support extending tax breaks to boost the conversion of vacant commercial properties into residential and there should be a scheme of capital allowances for converting unsuitable Georgian buildings into apartments.

IPAV is concerned at delays in conveyancing and wants the exchanging of contracts simplified, to reduce "gazumping."

In my view, the biggest issue is to get land back on the market and then the various incentives can really take effect. All of the above budget submissions are online and are worth reading.

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