Ireland: Overview
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Irish property crashes
The Irish property crash is worsening. Prices paid for second-hand apartments in Dublin fell by as much as 17% in 2007, and house prices in Dublin dropped by an average of 10% on the year, according to a review by the Irish Auctioneers and Valuers Institute (IAVI) (However Sherry Fitzgerald, an agent, reports a more moderate fall of 6.8% in 2007 on second-hand Dublin properties).
In the new apartment market, developers have been giving away cars, bathroom and kitchen suites in a vein effort to hold up prices. That is now starting to crack, as in January, two developers dropped prices 20% on two different developments.
Economic growth has been weakening. But with strong immigration and the relatively favourable interest-rate environment created by the Euro, in the long run house prices should be supported, though the peak growth years are over. Consumer price inflation (CPI) has shot up to 4.9% in the year to June, so the real cost of borrowing is still negative – somewhat supportive of house prices.
There are no restrictions on foreigners buying property.
RENTAL YIELDS
Yields are low at 4.06% in Dublin
Yields are around 4.06% for apartments and 4.96% for detached houses in Dublin, the centre of the rental market. Yields are around 4.64% in other major city centres in the country, such as Cork and Galway.
Nationally, rents are on the rise after a decline and are now back at their nominal Jan 2002 levels, up 11.9% over the past two years. However more dwellings were built in 2006, at 93,419, than ever before, so oversupply is a potential concern.
Nevertheless we believe that if house prices do continue to fall, rents are likely to recover further, because of high immigration, and because when house prices fall, people who might otherwise have bought tend to switch to renting.
TAXES AND COSTS
Taxes are in the medium range
Effective Tax Rate on Rental Income |
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| Monthly Income | €1,500 | €6,000 | €12,000 |
| Tax Rate | 10.1% | 11.5% | 13.9% |
| Click here to see a worked example | |||
Source:
Disclaimer |
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Rental Income: Gross rental income is taxed at 20%, withheld by the tenant. At the end of each fiscal year, the taxpayer has the option to file a tax return and to claim relief for expenses related to his rented property (i.e. maintenance, renovation, repairs, insurance, and management fees).
Capital Gains: Net capital gains are taxed at 20%. Acquisition costs, incidental expenses, and improvement costs are deductible from the gross selling price.
Inheritance: Inheritance tax is a flat rate of 20% and is applied after deducting certain thresholds or nontaxable amounts from the gross inheritance.
Residents: A resident is taxed on his worldwide income and the taxable income is determined by the taxpayer’s marital status and how many children he has, if any.
BUYING GUIDE
Buying costs are moderate in Ireland
Round-trip transaction costs are around 6.8% of the property price. This can go up to 13.6% because stamp duty is computed at a progressive rate based on the purchase price of the property. Properties that cost more than ?630,000 have the highest stamp duty, at 9%.
LANDLORD AND TENANT
Strong but fair tenant protection in Ireland
Ireland has strong tenant protection laws.
Rents. The parties are free to negotiate rents, but the amount must not exceed the open market rate. The rent may be reviewed and can only be adjusted once a year. Rent disputes go to the Private Residential Tenancy Board (PRTB).
Tenure Security. Security of tenure is effective for four years; during the first six months, the landlord can terminate the leasing contract without specifying grounds but once a tenancy has lasted six months, the landlord can only terminate the tenancy for the next 3 1/2 years citing just causes.
ECONOMIC GROWTH
Economic growth has weakened
GDP Growth in 2007 is estimated at 4.75%.after 5.7% growth in 2006 . Growth is forecast to slow to 3.25% in 2008. However, this slowdown is expected to be temporary.
Strong economic growth has been the primary factor behind the strong demand for housing. But another factor is migration, given that Ireland allows citizens from EU new member states to access its labor market. Since May 2004, population inflows have amounted to 4% of Ireland’s population or 8% of its labor force. Like immigrants everywhere, these immigrants are initially tenants, not buyers.
RESIDENTIAL PROPERTY AROUND THE WORLD
Asia & Pacific
Bubble fears prompt foreign ownership limits in China
America & Caribbean
The slowdown of the U.S. housing market
Middle East and Africa
Bahrain is open to foreigners and sizzling hot
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| RESIDENTIAL PROPERTY FACTS | |
| Price (sq.m): €5,000 For a 120 sq. m. property, usually an apartment. | Rental Yield: 4.00% For a 120 sq. m. property, usually an apartment. |
| Rent/month: €2,000 For a 120 sq. m. property. | Income Tax: 10.05% Assumptions: Owners are a non-resident couple drawing US$ / €1,500 per month in rent, with no other local income. |
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Roundtrip Cost:
7.0%
The total cost of buying and then reselling an apartment. Includes: * all transaction taxes and charges: * lawyers' and notaries' fees * agents' fees Assumptions: The buyers are non-resident foreigners. The apartment cost US$250,00 / €250,000. |
Cap Gains Tax: 18.6% Assumptions: The property was bought for US$250,000 / €250,000, and sold 10 years later, after a 100% appreciation. |
| Landlord & Tenant Law: Pro-Tenant Rating is based on a detailed study of each country’s law and practice. | |
FEBRUARY 2008
- Property developers owe over €100bn to banks - The Irish Times
JANUARY 2008
- House Prices Fell By Up to 10% In 2007 - Biz Plus Ireland
DECEMBER 2007
- What's ahead in 2008 house market (Editorial) - Irish Independent
- Rates remain a subject of great interest - Irish Independent
NOVEMBER 2007
- Property price crash is now in full swing - Independent.ie
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