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by Colman As I've mentioned, Sam and I are in the midst of buying a house and selling ours at the moment. Naturally, we've elected to do it just as the Irish property market swerves off the road and wraps itself around a tree. No doubt you're going to start reading stories in the newspapers about the lessons of the Irish property market for other markets in the same way that you've been told that the free market reforms in the Irish economy are responsible for the meteoric growth rate here while little details like National Development Plans, centrally negotiated wage agreements and payback on the investment put in by the EU over the last couple of decades are neglected.
Before anyone starts feeling sorry for us, let's have a quick look at the consequences of the boom for us: we bought our house three years ago, well into the boom, for €230,000. We will sell it for at least €317,500. Not a bad profit over three years, and given that we've paid off part of the mortgage we'll end up taking € 100,000 out of the deal. Of course, the house we're moving to also costs much more than it did three years ago, so we don't win in the end. What drove the boom here? Rapid economic growth in an economy with a large proportion of young and not-so-young people who needed somewhere to live coupled with changes in bank practices that made lending criteria much easier to satisfy. Layer some speculative froth on top of that from investors and you get the Irish property boom. Supply couldn't keep up with demand, so prices rose and the investors got excited so prices rose again. This time last year we could probably have sold our house for at least €350,000 - though the new house would also have cost more - and in fact houses around here were priced at that level for some time, which killed off the market. That price simply wasn't supportable for a two-bed terraced house out in the suburbs. You're talking about a mortgage of about €1,500 a month, which is just too much. Added to that is the threatened "reform" of stamp duty, which is a tax paid by the purchaser on the purchase of a house (actually a tax on the contract...if you sell without legal backing or a contract then no stamp duty). There is an election here this year and several parties are talking about significantly reforming the tax. So everyone waited until after the Budget in November, then they waited until after the Finance Bill in February and now they're waiting until after the election. Stamp duty rates can be quite high - as high as 9% on anything over €635,000 - and the
way they're calculated makes some price points very hard to sell at.
The consensus between estate agents is that our house is worth €
330,000. However, if you're a "first-time buyer" - someone who has
never owned residential property in Ireland - you are exempt from
stamp duty on properties of €317,500 or less. Thus, if you buy a
property for €317,499 it costs you €317,499. If you buy one
for €317,501 it costs you €327,026. This puts us in a
difficult situation: non-first-time buyers are putting off purchases
until after the election and first-time buyers have to pay an awful
lot more money to buy what is really a starter home. So we end up
selling at the taxation distorted price. Which means I won't be able
to afford a gold plated toilet seat in the new house, about which I'm Naturally again, the media are gleefully talking up the possibility of a housing crash, exacerbating the problem and quite likely causing one. I'm rather expecting our new house to be worth less than we paid for it for a year after we buy it. Incidentially, what would you say the consequences of a reduction in stamp duty are? It will inevitably increase house prices by the difference. If someone is willing to pay asking price plus stamp duty then they will be willing to pay asking price plus lower stamp duty plus the difference. A lot of the faltering in the Irish property market is down to electioneering and the details of the Irish tax system. I'm almost looking forward to seeing what the international press have to say about it. |
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Living the death of the Irish property boom | 105 comments (105 topical, 0 editorial, 0 hidden)
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