In April 2003 we observed continued capital appreciation in Irish property values notwithstanding the Iraq war, SARS and falling equity values in worldwide stock markets. There is a fall back in levels of rental income from commercial and residential properties here. However, general access to loan capital is facilitated by low interest rates notwithstanding inflation at 4.9% (March 2003). Ireland's economic growth rate placed it among the E.U's top performers.

In Summer 2002 we wrote that the trend of upward moving pricing and of increased capital values has hardly been affected by world events such as the bombing of the Twin Towers of 11th September 2001, the subsequent war in Afghanistan or the introduction of the Euro to the European Union in January 2002. The market does not appear to be saturated and Ireland's property market continues to excel. It remains the leading growth economy within the European Union. Inflation and taxation remains low, employment remains high and consumer spending remains confident. Adding to these facts is a new surge in the construction of residential and commercial property stimulated by the re-introduction of a law permitting loan interest to be allowed against liabilities to tax. This explains why Ireland is a great market for investment in property. This is supported by a young, educated population and by an increasing global business population immigrating into Ireland to avail of the opportunities which its prosperity and friendly tax regime offers.

In 1999 we wrote that property investors in Ireland are having a bonanza in relation to capital appreciation on their investments. Prices have risen steadily now for more than three years to the extent that, certain Dublin houses, which were worth €95,000 three years ago, may now be worth €475,000. This trend has spread out across the country. Property prices in Galway have exceeded all expectations in terms of increases. Property prices in places like Cork, Killarney and in many of the towns in Counties Wicklow, Kildare and Meath have enjoyed similar growth. This rapid appreciation has applied to many different types of property including starter family homes, middle and top range residential properties, holiday homes in picturesque settings, as well as in the many apartment developments shooting up in the towns and cities throughout Ireland. Price increases are evident also in the commercial sector as the tiger economy's requirements continue to exceed supply and expectation.

Evaluation of Government's Response
This phenomenal growth has given rise to social and economic issues of concern to the Government who have introduced measures on the back of the Bacon Reports seeking to reduce the difficulties facing people with inadequate incomes to finance property acquisitions. The Government announced measures in April 1998 following the publication of the first Bacon Report properly entitled "Action on House Prices". The Minister for the Environment and Local Government announced promises to allocate €19m to provide water and waste water services for some 44,500 additional residential house sites and €6.35m to local authorities to target areas where road infrastructure is a constraint to development. The aim is to encourage the opening up of more land for residential development. The Minister also promised to issue planning guidelines to the Local Authorities to promote higher densities in new housing developments in major urban areas.

The major ministerial response to the Bacon Report was the introduction of two separate rate band structures for Stamp Duty for residential property transfers including all new properties bought by non-owner occupiers and the continuation of the old structure for transfers of lands and non-residential properties. We set out details of these bands in our article in the previous issue of this magazine and they can also be found on our website to which we refer you generally in relation to information on how to purchase property in Ireland. At that time the most welcomed measure which the Minister has introduced for anyone investing in property, was the reduction of the Capital Gains Tax on the disposal of the investment in residential development from 40% (suitably indexed and tapered) to 20%.

With one year's hindsight, some commentators have been critical of the effectiveness of these measures but so far those new incentives in property acquisition, investment and development have been maintained. When account is taken of the unprecedentedly low rates of interest with which monies can now be borrowed to fund property investment, and the tax incentives in the form of capital allowances to Irish tax payers, when weighed against the increasingly higher price of entry into the market, now (rather than later) is the time to engage and our opinion seems to be shared by many others and their advisors if the number of cranes on the Irish sky line is any yardstick.

How to buy property?
In this website, we have set out key points of fundamental importance to anyone entering the Irish property market. These points we have found of particular value to foreign purchasers with whom over many years now we have regularly worked. Private investors in the Irish property market from abroad have some disadvantage in that they may not speak English. In our office at least four of our staff are fluent German speakers and we correspond daily in that language. We can also speak and correspond in Dutch and we are not entirely lost when it comes to the French language.

Why buy property?
The reasons why our foreign clients are interested in Ireland are because the properties and landscapes have characteristics which cannot be easily found on mainland Europe anymore and which can be acquired for what is still relatively good value. The most common reason for acquiring property is to put a roof over one's head and as, for most people, one's home is one's biggest investment, it is important that the correct legal advice is taken. This advice should be taken early on in the decision-making process and certainly before any commitment is entered in writing. For others, property is now an attractive provider for the future particularly with the considerable uncertainty on global stock markets and the poor return being given to depositors by the banks.

Tax Incentives
Investment in property is actively encouraged by Government measures which have introduced a range of tax incentives. These measures are linked to policy considerations of rural and urban renewal which have met with considerable successes. Many towns and villages throughout Ireland can now offer tourist accommodation which up until five years ago simply did not exist. Equally, market towns around Ireland are now boasting apartment accommodation and hotel facilities to support increasing employment in the area. All of this construction not only provides jobs and invigorates the former glory of local economies but also provides considerable tax savings in the hands of the investor by way of generous capital allowances and the old reliable Section 23 relief.

We can only give you a brief glimpse here of some of the incentives available to investors and most of these incentives will be of interest only to the Irish tax payer. Individuals outside of the Irish tax net may have achieved this by use of corporate structures. However, it is worthwhile noting that the decision to invest in property will bring with it a liability to Irish tax, whether it is Value Added Tax, Stamp Duty, Capital Gains Tax, Income Tax, Capital Acquisitions Tax or Inheritance Tax. Purchasing a property tends to fix you with a liability for tax and this is common to private international law principles. Surprisingly, the Government in balancing the need for renewal with the need for public revenue has decided largely in favour of the property developer and investor. We will list generally some of the incentives now:
*On the disposal of your principal private residence and one acre you pay no tax on the profit.
*On the disposal of residential investment property you now pay 20% instead of 40% on the profit.
*When investing in certain approved and eligible holiday cottage schemes, the cost of your investment is likely to be reduced because of the capital allowances by which the construction cost less the site value is allowed at 10% a year over ten years where the scheme is Bord Fáilte approved.
*Stamp Duty saving schemes have been introduced.
*Residences of certified floor area sizes specified are exempt from Stamp Duty.
*First time buyers of certain newly built houses are entitled to purchase grants whether or not they are Irish citizens.
*The interest on borrowings to finance property investments in certain circumstances can be written off against income tax liabilities.
*The construction cost of so-called Section 23 properties less the site value can be set-off by the investor against his income tax liability for all rental income from whatever source.
The above are some of the incentives which have been available for some time now and which have contributed to the acquisition of wealth by property owners and developers while also assisting the tiger economy growth.

The Location Maxim
The boom in property development is not all tax driven. Location, location, location is still the fundamental consideration, we are reliably advised by our estate agent friends. Many developments in recent years have been succeeding on this basis alone without any tax drive. A well-appointed property is likely to appreciate in value on its own merits. This is certainly the key to any property investment in our opinion as tax provisions can change from year to year and future tax law changes are difficult to predict accurately. If your investment grows on its own merits without incentives, subventions, financial hormones and the like, then your investment is all the better when some or all of these are added in.

We hope that this article will have assisted you in reaching your decision or in comforting you in your decision to get into the property business.

Should you require our advice in relation to the purchase of property in Ireland we would be delighted to help you on a professional, competitive basis. If you wish to avail of our services or require any further information, please send us an e-mail with, your name, address and telephone/telefax number or ring us at +353-1-6779078.