Budget 2018 in fact provided for the stamp duty on non-residential property to increase from 2 per cent to 6 per cent. It had been reduced to the flat 2 per cent rate in Budget 2012 (with effect from December 2011).
I am advised by Revenue that net receipts of Stamp Duty associated with all types of property for 2018 amounted to approximately €660 million, compared to a target of €785 million. It is tentatively estimated that around €488 million of these receipts related to non-residential property.
While a monthly profile covering Stamp Duty on non-residential property only isn’t prepared, for the full year 2019 receipts are forecast to be €565 million. The forecast for all property (residential and non-residential) is €750 million.
While the 2018 receipts of €660 million do represent a 16% or €124 million shortfall against target, it should also be noted that they represent a €279 million or 73% increase on the 2017 figures.
Based on the information available, it is estimated that the shortfall against target is attributable to a combination of reduced activity in other property categories, as well as a lower than expected yield on the residential side due to the prevalence of the forward purchasing model.
The use of taxation policy instruments have long been recognised as a potential tool to discourage speculative investment in property markets. For example, in the July 2016 IMF Staff paper on Ireland, reference was made to the use of property taxes (either based on capital or market value, or annual rental value) and cyclical transactions taxes as tools that could help dampen the boom phase of a real estate cycle as well as discouraging speculative activity.
The low 2 per cent flat rate that applied to non-residential property transactions for almost 7 years prior to the Budget 2018 increase was introduced at a time when activity levels were very low. It can be viewed as a departure from the much higher rates that had applied over the preceding fourteen years and was justified by the exceptionally difficult market situation and lack of commercial output that applied at the time of its introduction.
With the Commercial Real Estate (CRE) market performing strongly, the disjoint between available yields and overall viability considerations between the residential and commercial sectors, and given the policy desirability of re-balancing construction activity towards residential investment and avoiding overheating in the construction sector, it was appropriate to increase the rate of stamp duty applying to non-residential property to 6 per cent in Budget 2018.
The increase of the non-residential stamp duty rate in Budget 2018 has contributed to a dampening of any potential for overheating in the commercial element of the construction sector and has encouraged a greater focus on increased home building. The measure has therefore contributed to the ongoing balancing and stabilisation of the Irish property market, which has seen an increase in construction in the residential sector and a moderation in price increases in the sector.