Ireland to Raise Real Estate Tax to Fend Off Funds

(Bloomberg) – Ireland will raise a house purchase tax as outrage mounts over mutual funds sucking up property and crowding out first-time buyers.

The government will increase the stamp duty to 10% on purchases of 10 or more homes, Treasury Secretary Paschal Donohoe said in Dublin late Tuesday. The current tax is 1% for houses less than 1 million euros and 2% above this level.

The increased tax applies to bulk purchases and purchases of 10 or more units over a year, but not to apartment blocks.

The decision is made amid mounting tensions over investors buying homes for rent. The recent bulk purchase of nearly 80% of a development by Round Hill Capital LLC sparked a storm and prompted the government to take action to quell the political criticism cited by Sinn Fein. So-called cuckoo funds are seen as an intensification of a real estate crisis that can be traced back to a lack of supply.

The 10% interest rate “is intended to discourage the practice of institutional investors buying up homes that are near completion or that are fully completed,” Donohoe said in a statement. “Making sure people in this country have access to home ownership is a priority.”

READ: Dublin’s Bulk Home Sales Trail Backlash Against Big Money Buyers (1)

Last year Ireland had a shortage of around 13,000 homes, according to the government. However, international investors sometimes provide funds to fill this void, their defenders say.

Local authorities and accredited housing associations will be exempted from the levy in the proposal that Donohoe will bring to the Irish Parliament on Wednesday.

Regardless, the government announced plans to fend off up to 50% of new developments for owner-occupiers.

Irish Residential Properties REIT Plc’s shares rose up to 3% on Wednesday following the Dublin announcement.

The changes are “probably better than feared by many in the industry,” said Goodbody economist Dermot O’Leary. However, he said: “You are not addressing the housing blockages that are currently in place in Ireland.”

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(Updates with details, approvals and comments from the 8th paragraph)

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