Changes to conveyancing and boosts to house buildingFriday, 14 December 2018
In a Special Report published in The Sunday Business Post ( 9 December 2018) examining the issues discussed at the 5th Annual Property Summit, Head of Property Michael Walsh and Senior Associate Property Neil Dunne outline upcoming changes to conveyancing and measures to stimulate housing development:
Pre-Contract Investigation of Title (PCIT) - 1 January 2019
Next year the buying and selling of real estate will move to a PCIT system. The practical impact of this change is that all sellers, through their solicitor, will need to produce copy title and replies to requisitions with vouching documentation pre-contract. Buyers’ solicitors will need to investigate title pre-contract. Therefore, all property title queries will be dealt with and resolved in advance of contract signing. This is an important step in the modernisation of our conveyancing system as we move towards e–Conveyancing.
Increase credit supply to unit buyers
The rate of increase in lending to home buyers is modest. Following three months of decline, October showed only a slight increase e.g. first-time buyers by +5% yoy by volume, +7% yoy by value. As building output will scarcely outpace demand, clearly there cannot be profound increase in building output without greater financial capacity on the buy side. The Government established the Rebuilding Ireland Home Loan in February 2018 for first time buyers, with attractive long term fixed interest rates. By Q2 2018 over a thousand loans were approved, but it is not clear how many were drawn down.
Increase credit supply to developers
The availability of credit at reasonable rates for the developer is a real issue. The cost of funds is high and this impacts directly on the price the developer must charge the unit buyer. The developer must add 13.5% VAT on each sale, a higher rate than the tourism sector paid during its period of crisis. The Home Building Finance Ireland (HBFI) Bill 2018 is working its way through the Oireachtas. On Wednesday last Minister Eoin Murphy TD indicated that he aims to have HBFI established by the end of the year. It will finance development at ‘commercial rates’ across the country.
Incentivise apartment development
Last Tuesday Ronan Lyons of TCD said that “comparing our stock of dwellings with our population, Ireland has no shortage of houses - rather it’s missing about 500,000 apartments”. On top of mortgage repayments, recurring LPT and service charge payments and the same rate of VAT for apartments as for houses, buying an apartment can be a challenge. With construction costs continuing to rise, Part V commitments, development contributions to local authorities and to Irish Water, the business case for apartment development often does not stack up. This conundrum needs to be faced.
Battered Residential Investor
The return of full mortgage interest relief in the residential investment sector is to be welcomed. Soon we will have tighter controls on Airbnb style use and tougher sanctions for breach of tenancy regulations and greater security of tenure for tenants. It still feels chilly for the would-be residential investor.
Ireland is not unique as regards frustrations with the planning process. It is difficult to point to a much better system elsewhere, but we know a lot about what is not working here to be able to sketch out and develop a better model. The approvals timelines are undoubtedly impacting on the housing supply and this is not assisted by allowing third party observations from parties without any reasonable standing. With only eleven decisions currently pending on strategic housing developments with An Bord Pleanála (ABP), and less than half of projects that commence the consultation phase making it through to a formal application, the uptake for this ‘fast track’ process is disappointing. We need to rethink height, density and connection to current and new public transport infrastructure. We need more strategic development zones and to centralise to ABP planning decisions in relation to additional urban areas of strategic importance to deliver progress of scale. To be fair, Project Ireland 2040 embraces many of these concepts but the objectives need to filter down and implementation is key.
Vacant residential properties – is it time to look at LPT reform for properties lying vacant for a prolonged period? For those homeowners who are in long term care could we permit the letting of homes which currently lay idle without adverse consequences to social benefits? Could we reduce CGT for a short period for the sale of second hand residences to encourage the long overdue churn, with a view to shaking out vacant stock to be put back into use? Should capital allowances be extended for refurbishment of pre-63 residences which are dilapidated and out use? If the objective is to get more properties to the market for use, let’s promote an increase in the contributors to supply.
Land Development Agency
The Land Development Agency was established earlier this year, following models seen in Germany and the Netherlands. The aim of the LDA is twofold (1) using underutilised State land for effective delivery of housing, and (2) strategic land assembly, both public and private lands to smooth out peaks and troughs of land supply. With initial capitalisation of €1.25BN from ISIF, once up and running this should make a profound impact especially during the next downturn, to keep housing output at required levels to meet social needs. The LDA predicts it will deliver 150,000 units over the next 20 years. Let’s hope that a public procurement model can be achieved that allows for efficient roll out.
Head of Property Michael Walsh and Senior Associate Neil Dunne spoke at the 5th Annual Property Summit, which took place Wednesday, 5 December 2018 in the Aviva. For more details on the topics and issues discussed, click here.
Click here to download the full Special Report on the Property Summit, published in The Sunday Business Post, Sunday, 9 December 2018.