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IMF warning on commercial real estate must be heeded - Pearse Doherty TD

1 October, 2016 - by Pearse Doherty TD

Sinn Féin Finance Spokesperson Pearse Doherty TD has said an IMF report which warns that “close surveillance is needed to evaluate the early signals of a build-up of new imbalances in the commercial real estate markets” backs up Sinn Féin’s position on the taxation of funds involved in property deals and must be heeded.

He pointed out that the last property crash was mainly a commercial property crash even more than it was a residential property crash. He has called on government to increase stamp duty on commercial property and to remove the withholding of tax exemption for non-resident investors in funds.

He said:

“I have been raising the issue of tax free fund structures, such as the ICAV and QIAIF, for foreign investors for some time now and am glad the minister is listening. He informed me yesterday that he is ‘aware that concerns have been raised about the use of funds in the Irish property market by international investors which may be eroding the Irish tax base’.

“Minister Noonan also stated that officials from the Department and the Revenue Commissioners are examining the use of certain structures in the Irish property market and are preparing measures to ensure that the Irish tax base is protected. This IMF report should act as a shot in the arm to Michael Noonan and his officials.

“The foreign money inflows through tax free fund structures, such as QIAIFs and ICAVs, are a cause for concern, given the risk from how intertwined they have become with our commercial property market and their potential to cash in on their investments and head elsewhere. 

“There is no doubt that the foreign money which has been buying up commercial property through tax free fund structures, has been pumping up the price of commercial property in recent years.

“These speculators are presently intertwined with the commercial property market, in 2006 the proportion of foreign money as a proportion of office spend was 2%. This figure was over 67.8% for Dublin office spend in the first quarter of 2016. The risk is that if these tax free speculators who are chasing profits were to suddenly pull out the market could unravel. 

“The scale of turnover in commercial property due to these tax free foreign investors has been unbelievable. According to a report from property group Savills this year almost one million square metres of office space, was traded in Dublin between the start of 2013 and the end of the first quarter of 2016. This is equivalent to just over 25% of the entire office stock in Dublin. 

“The proportion of space traded in the central business district was even higher at 38%. Minister Noonan needs to immediately act so as to avoid a bubble in commercial property with history repeating itself to the detriment of the Irish public.

“He should ensure that the withholding tax exemption for non-resident investors in funds is removed when dividends from the funds related to Irish source activities. Furthermore, he should increase the commercial stamp duty from 2% to 3%.”


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