What next for Irish property prices?

Earlier this week the Finance Bill 2022 was published, giving further details on the initiatives and tax measures for 2023, as announced last month on Budget Day.

Updated measures that may impact upon developers and property owners in Ireland are as follows:

1. A Vacant Homes Tax will apply to residential properties that are vacant/unoccupied for 12 months or longer (subject to exceptions), commencing on the 1st of  November 2022, at a rate of three times the property’s local property tax.
2. Pre-letting expenses allowable on vacant residential properties has been increased from €5,000 to €10,000 and the eligible vacancy period has been reduced to six months.
3. The details of the Residential Zoned Land Tax (RZLT), as announced in Budget 2022,  were made available through Budget 2023 and the most recently published Finance Bill. These provide for a 3% tax on the market value of land within zoned areas and maps are due to be published by local authorities nationwide from the middle of next week (November 1st) to identify zoned land. Landowners will then have until the 1st of January 2023 to have the zoning status of their lands reviewed.
4. Extension of the Residential Development Stamp Duty Refund Scheme from 31st December 2022 until 31st December 2025. In order to qualify for this partial refund, construction works must be commenced within 30 months of the land transaction completing.
5. Despite mixed messages, the concrete levy to part fund the Defective Concrete Blocks Redress Scheme has been reduced (since the Budget 2023 announcement) to 5% and will only apply to certain concrete products. Also, the levy commencement has been pushed out to September 2023.
6. The Living City Initiative has been extended for a further 5 years, until the end of 2027.
7. Both the REIT and the IREF regimes will be subject to review.

While the stated intention of construction and real estate measures in Budget 2023 was to stimulate and facilitate supply, arguably, it did not go far enough and opportunities were missed. But how is this likely to impact property prices for 2023?

In recent months, the rate of increase of property price increases has softened. In its most recently published Quarterly Economic Commentary, the ESRI shared expectations that Ireland’s property market looks set to moderate substantially. This is based, in part, on the recent European Central Bank interest rate increases, with further increases expected. The ESRI expectations are also based on inflation, which is driving construction costs upwards at an average rate of 14 percent, according to the Society of Chartered Surveyors (summer 2022 figures).

As of Q3, housing prices across the country are 2.2% above the highest level recorded back in Q2 2007. After a five-year decline, from 2008 to mid-2013, prices have been rising (with the exception of one quarter in the early days of the pandemic). For how long might this upwards trend continue?

With demand remaining strong and supply being stubbornly slow to catch up, Conall MacCoille, chief economist at Davy commented to RTE:

“The data point to little sign of any slowdown”