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Stamp Duty Rise Changes Property Investors’ Policies Back  
Dr Clare McParland writes on the results of a new survey into the effects of the Government’s decision to increase commercial property stamp duty to 9%.
The majority of Irish investors, including institutions and individuals, have changed their commercial property investment policies as a result of the Government’s increase in stamp duty to 9% in this year’s budget.

This is the main finding of a survey carried out by Jones Lang LaSalle into the impact of the rise in stamp duty from 6% to 9%, one of the highest rates in Europe which has increased total transaction costs on Irish property to 11.42%.

The survey of active investors - including institutions, individuals, consortia, property companies and banks ‑ showed that the rise has increased the attractiveness of investing in alternative locations such as the UK (where stamp duty is 4%) and other European and Eastern European countries
As a result of the increase and the high transactions costs on Irish property, a majority of investors would now consider using Special Purpose Companies (SPCs) as a mechanism to own and invest in Irish commercial property. These would allow equity interest in property to be converted into tradable shares while circumventing some of the stamp duty costs in the process.

Respondents to the survey also pointed out that the stamp duty rise was not the only factor lessening the attractiveness of Irish property at present. Other factors included the overweight position in property of institutions which have seen their equity portfolios shrink due to bad stock market performances.
The stamp duty rise has come at a particularly inopportune time as the property market was trying to stabilise in the face of other influences like a decline in demand for office space. It has reduced the liquidity of the Irish market, partly as a result of the higher transaction costs, but also because some investors are waiting to see if the measure will be reversed in the 2004 budget.

The Government has set a target of €118.5 million to be raised from commercial property stamp duty in 2003 but few of the survey’s respondents expect that target to be met. Furthermore, it will be difficult to tell whether it is or not as the Department of Finance only reports an overall figure for stamp duty which includes credit cards, ATMs, stocks and shares, residential property and insurance.

Perhaps the Department could start providing details for each category of stamp duty so that the financial effects, at least, of policy changes would be clear to all.

For further information or a full copy of the survey results please contact Dr Clare McParland, Head of Research, at Jones Lang LaSalle, Dublin 00 353 1 673 1600.

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