Ronan, you’re clearly looking for a clatter across the top of the head writing this kind of stuff. You want to introduce proper, sustainable taxation with respect to property? Sure why not go the whole way and advocate the banning of further one-off properties, the taxing septic tanks and charging for water. I know you reference The Field, but have you ever watched it? Property, the opium of the Irish masses … and you want to tax the collective fix. Shame on you! Sustainable taxes is the kind of nonesense those sober Germans do.
Donal O'Brolchain
,
A clatter across the top of the head would mean someone (perhaps even someone with power) paid attention.
Ulrik Andersen
,
Yes, it would help build confidence in Irish property if a realistic long term property taxes was introduced and a big majority of parties in the Irish parliament agreed and voted for it.
What is introduced so far is not believable long term. It is to weak and by far not enough. Not believable long term.
Further, I would rather go for a property in 2016 at 60 % below peak price than a 50 % below peak price in 2012 with a doubtable tax deduction exception.
So we are waiting…and we will keep waiting, and keep our foreign direct investment in our pockets, until Ireland stop its property-fix and a believable property market are allowed to find its own feet.
kildon
,
is the “new 33% mortgage interest relief” a typo?
I read in the paper that the central bank was introducing limits on ltv and maybe banning variable interest rates, will this help or hinder the market
because the majority of those who have a mortgage in the 04 to 08 period are on tracker rates, the increase in mortgage interest relief doesn’t make too much of a difference and variable rates are quite low so not too much help for those either
Because the new loans issued today are for a small value, again I would say it won’t make a whole lot of difference to someone buying today or not
cost to the government can’t be too much, can it?
A limit on LTV “done well” is one that doesn’t get swept away the next time house prices start increasing; there must surely be something short of a constitutional amendment that will do this! A ban on variable interest rates “done well” would be a requirement on banks to borrow long to lend long: if a bank wants to lend €200m in mortgages this year for 30 years, it should be required to go off to capital markets and borrow that amount over 30 years (and not 3 years). Thus, the default product is switched from a variable to a fixed. “Ban” might be too strong a word, but Ireland in the eurozone needs the protection from the effect on consumption of inappropriate interest rates that this would offer.
Jeremy Taxman
,
one of the most important things which needs to be done is to limit the borrowing power of individuals. In France, there is a maximum percentage of your NET income which a mortgage can be. This protects both the banks from being reckless and individuals from overstretching themselves. Of course, this doesn’t suit the developers or other vested interests, so will probably never happen here.
@Jeremy
In a fixed interest rate scenario, percentage of net income is very useful. In a variable interest rate scenario, it is less so – technically, net affordability in many cases was excellent right the way the bubble, but only because interest rates were unhealthily low.
Thanks for the comment,
Ronan.
Effo
,
@Ronan,
While I agree on the need for a property tax (most western nations have one) I disagree on your comments regarding a capital gains tax; few countries apply such a tax to principal private residences (PPR’s), for a very good reason.
The reason is that it severely inhibits labour mobility. Supposing I bought a house in Limerick in 1997 for 100k. Now say I’m offered a job in Waterford; I must either become a renter again in late middle age, or else I sell my Limerick house for 250k and buy a similar one in Waterford for the same price. The government would charge me 45k CGT on my supposed ‘gain’ of 150k. So I stay put. In other words, CGT on PPR’s becomes (in a normal environment of long-term moderate inflation) a massive transaction tax, far worse than stamp duty ever was. This would freeze the second-hand market as well as inhibiting labour mobility. Recent purchasers wouldn’t be able to move either, due to negative equity, so everyone would be stuck.
One last point: you speak about ‘levelling the playing field’, but there is a fundamental difference between a PPR and a rental property. A rental property investor can dispose of a property and reinvest the proceeds in a better-performing asset class, or just spend it on botox. A PPR, when sold, is almost always replaced (as a matter of necessity) with a purchase of another PPR; the seller doesn’t realize any net cash on the sale. This cycle continues until death, where the taxman can justifiably take a cut of the final accumulated capital gain via inheritance tax.
Hi Effo,
Thanks for the comment. I’m not unwavering on the CGT point but what you speak about towards the end applies both way. Because no net cash is realized when owner-occupiers switch properties, the price level of property will adjust down to reflect any CGT. The overall effect might look like it reduces gross wealth in an economy (all houses would be worth slightly less in this scenario) but it also reduces gross borrowing, so it’s about reducing balance sheet effects, not really net wealth.
Also, I’m not talking about a 100% CGT, so if you make a profit on a house you still have a war chest to bring with you, just a slightly smaller one (but so does everyone – hence prices adjusting downwards). Distinguishing between rental and owner-occupier properties is a dangerous game to start playing as it splits the market. For full labour mobility, you want people to be able to rent or buy any broad class of property in any part of the country.
R
Effo
,
Hi Ronan,
When it comes to labour mobility, it is not useful to compare an owner-occupier with a property investor. The valid comparison is between an owner-occupier who moves house for employment reasons and one who chooses not to move. In a CGT environment (or a high stamp-duty environment), the latter is clearly better off than the former. This introduces ‘friction’ to the labour market, and makes it less likely that people are matched to jobs in the most economically efficient manner.
You speak of a ‘war chest’, but in a like-for-like house swap, like the example above, the seller doesn’t have a ‘profit’ that allows him to trade up to a better house; in fact he would need to borrow extra money to pay the CGT just to maintain the same size/value of house.
Rapesco
,
Maybe we should just throw our keys in the letterbox and head for the hills. Ppl are struggling to pay bills and buy food and were supposed to come up with money to pay property tax. This is crazy!
Rob Kitchin ,
Ronan, you’re clearly looking for a clatter across the top of the head writing this kind of stuff. You want to introduce proper, sustainable taxation with respect to property? Sure why not go the whole way and advocate the banning of further one-off properties, the taxing septic tanks and charging for water. I know you reference The Field, but have you ever watched it? Property, the opium of the Irish masses … and you want to tax the collective fix. Shame on you! Sustainable taxes is the kind of nonesense those sober Germans do.
Donal O'Brolchain ,
A clatter across the top of the head would mean someone (perhaps even someone with power) paid attention.
Ulrik Andersen ,
Yes, it would help build confidence in Irish property if a realistic long term property taxes was introduced and a big majority of parties in the Irish parliament agreed and voted for it.
What is introduced so far is not believable long term. It is to weak and by far not enough. Not believable long term.
Further, I would rather go for a property in 2016 at 60 % below peak price than a 50 % below peak price in 2012 with a doubtable tax deduction exception.
So we are waiting…and we will keep waiting, and keep our foreign direct investment in our pockets, until Ireland stop its property-fix and a believable property market are allowed to find its own feet.
kildon ,
is the “new 33% mortgage interest relief” a typo?
I read in the paper that the central bank was introducing limits on ltv and maybe banning variable interest rates, will this help or hinder the market
because the majority of those who have a mortgage in the 04 to 08 period are on tracker rates, the increase in mortgage interest relief doesn’t make too much of a difference and variable rates are quite low so not too much help for those either
Because the new loans issued today are for a small value, again I would say it won’t make a whole lot of difference to someone buying today or not
cost to the government can’t be too much, can it?
Ronan Lyons ,
Hi kildon,
Yes, 33% is a typo, well spotted! Don’t worry the calculations are based off 30% relief.
My belief is that done well, both limits on LTV and banning variable interest rates are extremely good ideas, although there is by no means any unanimity about this, see for example:
http://www.irisheconomy.ie/index.php/2011/12/15/european-commission-report-on-ireland-december-2011/
A limit on LTV “done well” is one that doesn’t get swept away the next time house prices start increasing; there must surely be something short of a constitutional amendment that will do this! A ban on variable interest rates “done well” would be a requirement on banks to borrow long to lend long: if a bank wants to lend €200m in mortgages this year for 30 years, it should be required to go off to capital markets and borrow that amount over 30 years (and not 3 years). Thus, the default product is switched from a variable to a fixed. “Ban” might be too strong a word, but Ireland in the eurozone needs the protection from the effect on consumption of inappropriate interest rates that this would offer.
Jeremy Taxman ,
one of the most important things which needs to be done is to limit the borrowing power of individuals. In France, there is a maximum percentage of your NET income which a mortgage can be. This protects both the banks from being reckless and individuals from overstretching themselves. Of course, this doesn’t suit the developers or other vested interests, so will probably never happen here.
Ronan Lyons ,
@Jeremy
In a fixed interest rate scenario, percentage of net income is very useful. In a variable interest rate scenario, it is less so – technically, net affordability in many cases was excellent right the way the bubble, but only because interest rates were unhealthily low.
Thanks for the comment,
Ronan.
Effo ,
@Ronan,
While I agree on the need for a property tax (most western nations have one) I disagree on your comments regarding a capital gains tax; few countries apply such a tax to principal private residences (PPR’s), for a very good reason.
The reason is that it severely inhibits labour mobility. Supposing I bought a house in Limerick in 1997 for 100k. Now say I’m offered a job in Waterford; I must either become a renter again in late middle age, or else I sell my Limerick house for 250k and buy a similar one in Waterford for the same price. The government would charge me 45k CGT on my supposed ‘gain’ of 150k. So I stay put. In other words, CGT on PPR’s becomes (in a normal environment of long-term moderate inflation) a massive transaction tax, far worse than stamp duty ever was. This would freeze the second-hand market as well as inhibiting labour mobility. Recent purchasers wouldn’t be able to move either, due to negative equity, so everyone would be stuck.
One last point: you speak about ‘levelling the playing field’, but there is a fundamental difference between a PPR and a rental property. A rental property investor can dispose of a property and reinvest the proceeds in a better-performing asset class, or just spend it on botox. A PPR, when sold, is almost always replaced (as a matter of necessity) with a purchase of another PPR; the seller doesn’t realize any net cash on the sale. This cycle continues until death, where the taxman can justifiably take a cut of the final accumulated capital gain via inheritance tax.
Ronan Lyons ,
Hi Effo,
Thanks for the comment. I’m not unwavering on the CGT point but what you speak about towards the end applies both way. Because no net cash is realized when owner-occupiers switch properties, the price level of property will adjust down to reflect any CGT. The overall effect might look like it reduces gross wealth in an economy (all houses would be worth slightly less in this scenario) but it also reduces gross borrowing, so it’s about reducing balance sheet effects, not really net wealth.
Also, I’m not talking about a 100% CGT, so if you make a profit on a house you still have a war chest to bring with you, just a slightly smaller one (but so does everyone – hence prices adjusting downwards). Distinguishing between rental and owner-occupier properties is a dangerous game to start playing as it splits the market. For full labour mobility, you want people to be able to rent or buy any broad class of property in any part of the country.
R
Effo ,
Hi Ronan,
When it comes to labour mobility, it is not useful to compare an owner-occupier with a property investor. The valid comparison is between an owner-occupier who moves house for employment reasons and one who chooses not to move. In a CGT environment (or a high stamp-duty environment), the latter is clearly better off than the former. This introduces ‘friction’ to the labour market, and makes it less likely that people are matched to jobs in the most economically efficient manner.
You speak of a ‘war chest’, but in a like-for-like house swap, like the example above, the seller doesn’t have a ‘profit’ that allows him to trade up to a better house; in fact he would need to borrow extra money to pay the CGT just to maintain the same size/value of house.
Rapesco ,
Maybe we should just throw our keys in the letterbox and head for the hills. Ppl are struggling to pay bills and buy food and were supposed to come up with money to pay property tax. This is crazy!