Thursday, 28 March 2013

More Property Porn...

We're being seduced by property porn again – will we ever learn?

LAST week the "glossy brigade" was out in force. Papers were full of bright, impossibly blue skies, over "imposing" homes many of which "boasted" this feature or that attribute. Yes, the glossy brigade, Ireland's property pornographers, who pedal lifestyle fetishes to the middle classes are back at a newspaper close to you.

Amazingly, just six years after a property crash, which destroyed much of the economy, chatter about house prices appears to be back, or at least, out of social quarantine. Any day soon, expect a new TV programme on house hunting, the joys of home makeovers or the allure of trading up.
Why do we allow ourselves to be taken in by this nonsense? Every spring since the crash, the estate agents and the property industry have tried to re-launch the property market with puff pieces, hard selling and gimmicks.
Yet underneath the hype, the evidence from the housing market, published yesterday tells a significant story.
Since the pre-Christmas spinning about property, in February prices fell for the third month in a row. Prices are down 2.6pc on the year.
So much for the talk about the recovery in the domestic economy which spilled out from the huge marketing push of so-called "Ireland Inc" in the US around St Patrick's Day.
The reality is the house price index has just experienced its largest monthly decline since January 2012. House prices fell 1.6pc between January and February.
But when you look a bit closer, you see a tale of two markets. In Dublin, property prices fell 0.3pc in February but are up 3pc on the year. Outside the capital, prices continued to slide, falling 2.1pc month-on-month and a nasty 6.1pc decline since this time last year.
The Dublin market is showing the early signs of decoupling from the rest of the country. Outside Dublin, house prices are still weak and in the past two months have weakened further.
There are simply too many houses in the wrong part of the country where people don't want or can't afford to live at today's prices. So what will happen? Prices will continue to flatline or fall.
The first thing to appreciate is just how dramatic the fall has been. Overall house prices are down by just over 50pc across the board and in Dublin prices are down 56pc from peak to trough.
If you want to see the recession, look no further. Because so many people were convinced by the 'glossy brigade' to see housing as a wealth generating exercise, the flip side of the fall in houses prices is a massive increase in debts relative to assets.
Billions of euros of household "wealth" have been destroyed by this collapse in houses prices, yet the debt remains. And the more house prices fall outside Dublin the more the debt relative to assets rises. And what the banks are about to do – which is to accelerate house selling in order to clear their books – is going to make the situation worse. In economics, this is called the paradox of deleveraging.
When the bank and the home-owner sit down as is now envisaged in the personal insolvency process unveiled last week, the bank tells the client to sell the property. This makes the individual debtor's balance sheet better. But this is only the case if he sells and no one else does. But what happens when the banks are sitting down with everyone and telling them all to sell (repossession by another word) at the same time?
Obviously all prices fall. Therefore the very act of trying to pay back debt quickly puts the debtor in a position whereby he has more debt relative to his assets rather than less debt.
This is likely to be the ultimate consequence of the Government's efforts to bring the housing/banking crisis to a close. Prices outside Dublin, where the vast majority of new houses in new estates were bought during the boom in counties surrounding the capital, are likely to fall further.
In contrast, some parts of Dublin – south Dublin and older areas in the capital – are witnessing a mini-boom where there are not enough properties and there is no more space to build. We are seeing what might be described as the 'Knightsbridge and Kensington' effect in this part of the Dublin market. Over the years in London, even in severe property slumps, Knightsbridge and Kensington tend not to lose their value, or if they do, these areas rebound quickly.
But the question for the country and the economy remains: is this a good thing? Is a recovery of the housing market in Dublin a good development?
The unambiguous answer is no. Property destroys economies, good money chases unproductive investments and banks revert to type.
We all know that is going to happen. We have seen this before. The banks will start at the usual again, despite the slump, as they compete with each other to lend to 'sure bet' customers again. As trophy house prices rise, they will begin to look for less and less collateral and will, yet again, get involved in the property racket. Leopards don't change their spots.
In order to prevent this two-tier market developing and the banks again driving up property prices, the central bank could act. The key to house price rises is collateral. If the banks lend a percentage of today's price, then the rise in prices becomes self-reinforcing. Each rise begets new larger loans and so on.
What if instead of lending against today's price, the banks were forced to lend against the average house price for the last 30 years.
House prices would never rise dramatically. There would be no boom or busts and the housing market would never again distort the economy.
Now's the time to do it, when the property cheerleaders are still relatively muted and when the collective memory is still traumatised by the last boom.
If Dublin decouples from the rest of the country on a permanent basis, it will reinforce wealth divisions, with one section of the population struggling with too much debt and not enough income.
Another smaller, but influential part of the population will find their wealth underpinned by rising property prices. If that were the upshot of the past six years of economic trauma, it would be a lamentable result for all of us.
Report by DAVID MCWILLIAMS - Irish Independent

Friday, 22 March 2013

Ghost Estates - Haunted By New Tax...

Thousands of 'ghost estate' residents will now fall into tax net...

THOUSANDS of homeowners living in unfinished developments will be hit with property tax bills from the summer.

People living in estates which were classed as "seriously problematic" just four months ago will be forced to pay the tax after the Department of the Environment decided they did not qualify for a waiver.
Last year, some 1,322 housing estates containing 43,000 homes were considered exempt from the household charge because essential works needed to be carried out.
The Government has now decided that just 421 estates, with about 5,100 households, will not have to pay the property tax.
Housing Minister Jan O'Sullivan defended the move, saying that essential works, including public lighting, water treatment systems, roads and open spaces, had been provided in many estates since last summer.
The reduction in those qualifying for a waiver showed that progress was being made in tackling the problem of unfinished developments, she said.
"It does show there has been an improvement in a significant number of estates. We've been keeping the pressure on the various interests including developers, NAMA and local authorities to get things done," she told the Irish Independent.
"Part of the figure (of 1,322 exempt housing developments) was made up of estates which had no occupied houses. It would have been disingenuous to have listed them as exempt. The others would be ones where work has been done.

"I have no reason, as minister, to have not presented accurate figures. We got the figures from local authorities. I have seen estates where a small amount of work was needed, which would take the entire estate out of the seriously problematic category. The ones still in the category are still the worse ones, and are still unresolved."
The tax is calculated on the value of the property and is self-assessed by the owner. Some 180,000 demand letters have already been sent.
But questions remain as to why so many homes are no longer deemed exempt, given that the Government has only made €5m available to local authorities to improve estates, while NAMA has spent €3m improving around 180 developments it controls.
The decision to take the additional thousands of homes into the property tax net was also defended by Communications Minister Pat Rabbitte, who insisted it was "fair".
But the move was criticised during Leader's Questions in the Dail by Fianna Fail finance spokesman Michael McGrath, who said that only one in eight of those who had a property tax exemption would keep it.
Sinn Fein deputy leader Mary Lou McDonald said households living in unfinished ghost estate and "building sites" had suffered significant stress.
Rebel Labour TD Colm Keaveney said many people had seen no improvement works carried out in their unfinished estates over the past year – yet were now expected to pay the tax.
"People are furious because the councils never came to fix the lights, the footpaths and the services. Pat Rabbitte said that work had been carried out. Show me the work," he said.
Separately, the Campaign Against Home and Water Taxes has announced a day of protests tomorrow, with demonstrations planned in Dublin, Kildare, Louth, Cork, Wicklow, Limerick, Kilkenny, Wexford, Waterford, Carlow, Galway and Laois.
Report by PAUL MELIA AND MICHAEL BRENNAN - Irish independent

Friday, 8 March 2013

Guide To Calculating New Property Tax...

Homeowners' guide to calculating and paying the new tax...

From next week 1.9 million homeowners will start getting letters from the Revenue outlining how they are to pay a new local property tax which is to replace the household charge that was introduced two budgets ago.

Property tax? But I paid a fortune in stamp duty when I bought my house at the height of the boom. Surely I can’t owe more money on a property that is now worth half of what I paid for it?

Yes you can. The Government, has decided to ignore the massive amounts of money it collected from us in property-related stamp duty over the last decade or so and start on a blank page when it comes to property tax.

The good news (for the Government) is that it should raise €500 million a year from the new tax.

How much will this one cost me? 

Well it depends on where you live, but the good news is that the majority of people will be expected to pay less than €500 a year thanks to the all but total collapse of the Irish property market in recent years – a case of every cloud and all that.

There are 20 tax bands of €50,000 which go up as far as €1 million.

If your property is deemed to be worth more than that, the bands are dispensed with and you pay tax on the actual value of the property.

A band of €50,000 is a lot and there is a difference between €200,001 and €250,000. How is the tax worked out?

The rate is at the mid-range of each €50,000 bracket, so if your house is valued at either €210,000 or €245,000 the tax assessment will be based on €225,000.

I still don’t know how much it is going to cost me. 

Patience. The tax is going to be charged at 0.18 per cent of the value of the property up to that €1 million mark, with a rate of 0.25 per cent being attached to all sums over that figure.

About 90 per cent of Irish houses are now estimated to be worth less than €300,000 which will see the tax liability for most people coming in at €50 a month or less.

Only half the tax is payable for 2013.

Break the numbers down for me. 

If your house is worth between €200,001 and €250,000 you pay 0.18 per cent of €225,000, or €405 in a full year.

If your house is worth €500,000 you will end up paying €945 a year.

If you are lucky enough to own a house that is worth €1 million, you will be hit with a tax bill of €1,755.

On the other hand, if your house is worth between €150,001 and €200,000, you can expect to pay €315 a year.

I don’t have an extra fiver a month once all my bills are taken care of. What if I can’t afford it?

There will be some circumstances in which some people will be allowed to defer the tax. There will be three tests for people applying for deferrals.

The first is a straightforward income test.

If your gross income does not exceed €15,000 for a single person or €25,000 for a couple and you have no mortgage, you can defer the payment.

If you are in that income bracket and you have a mortgage, you can add 80 per cent of the gross mortgage interest repayments to that income ceiling.

You can also apply for a partial deferral if, as a single person, you earn no more than €25,000, or €35,000 for a couple.

Tax deferred accrues interest. For example, if you owe €206 at the end of this year, that becomes, with interest, €215 in 2014 and €228 in 2015.

Deferral will also be considered if someone is suffering “excessive hardship”, which applies if a person has suffered a significant financial loss or incurred a significant expense. Neither of these phrases is properly defined in the new law.

Homeowners in a debt settlement or insolvency arrangement may also qualify for a deferral for the duration of that agreement.

There is also a three-year deferral for people handling the estates of deceased people.

Is anyone fully exempt? 

Yes, but very few people.

Properties bought from developers since the beginning of this year will be exempt until 2016 if they have not yet been lived in.

People who have had to vacate a property, bought as their home, because of long-term illness are exempt, while people who own a house in ghost estates will not have to pay the tax.

Properties used by charities have been excluded once they are used for recreational purposes, while homes adapted for use by people with disabilities could be exempt if the property was grant-aided by the local authority.

Some householders whose homes are affected by pyrite will be exempt for three years.

I don’t fall into any of those categories but I don’t want to pay. What are my options?

None. Unlike the €100 household charge which many people put on the long finger or ignored, this tax will be policed much more assiduously.

If you don’t pay it, the Revenue has all manner of ways to get it from you.

It has the power to deduct it from your wages or have it taken out of your pension. It can go after your bank accounts. It can withhold tax clearance certs, tax refunds and can impose fines and penalties. In short, it is not to be messed with.

Fine! How do I pay? 

There are a number of options.

You can pay online at The taxman says this is the “quickest and most straightforward option to file your return”.

It does not say why anyone would want to pay their tax quickly, however. Using the online system you can pay by credit card – a bad idea because of the high rate of interest on credit card transactions – or by debit card (better).

You can also fill in your bank details on the letter you will get and pay in full or you can pay by direct debit.

Bear in mind that if you pay by direct debit you will incur charges imposed by your bank so a better, cheaper option would be to have the money taken from your salary by your employer.

Other payment methods include cheques and cash payments through the post office or possibly utility companies, although the latter has yet to be confirmed. In short, Revenue has come up with all manner of ways to help you pay up.

When will I have to pay? 

There are a number of important dates to remember.

May 1st is the date on which the property will be valued and if you are paying using regular post, the tax will have to be paid by May 7th.

If you use the online system, you have until May 28th.

If you opt to have the payment deducted at source – by your employer – that will begin at the beginning of July, while if you decide to pay by direct debit the first payment will come out of your account in the middle of July.

Back up . . . the household charge? I forgot about that. If it is being scrapped and I haven’t paid it yet, am I in the clear? 

Absolutely not. If you pay the household charge by April 30th, you will have the fee capped at €130 – the original charge plus €30 in arrears and penalties.

If the tax is still outstanding in July, it will be increased to €200 and added to the local property tax due on your property.

Who determines the value of my property? 

Ultimately you, but you will get some help from the Revenue.

When you get your letter next week, there will be a suggested tax band for your house but the ultimate decision on which tax band your property will fall into falls into your hands.

You will be expected to take into account things like the state of your property, any extensions, home improvements or rowdy neighbours when determining the actual value.

Be warned, however, that you will be expected to tell the truth so if you assess your gorgeous three-storey over basement red-brick house on a leafy Rathgar avenue in Dublin to be worth just €100,000, there is a good chance you will get a visit from Revenue before you can say “audit? I don’t want an audit.”

These estimates the Revenue are making, where do they come from? 

Ah, you thought the property price register was for our benefit, didn’t you?

The register, which went live six months ago, has been a nosey-parker’s dream come true as it allows them to see exactly how much their neighbours are buying and selling their homes for.

Its main purpose is to help the Revenue determine how much properties across the State are selling for and then tax you accordingly.

That is not all, however.

The Revenue is also going to use a database developed by the Ordnance Survey of Ireland and An Post which contains information on the services and amenities near your home.

This is good news if you live on a barren and windswept stretch of the M50 where there is nothing that will add value to your home, but perhaps not so good if you live in Ranelagh.

So what happens if the Revenue underestimates the value of my house because it doesn’t know about my basement swimming pool and gazebo? 

You have to tell them the truth.

If you have the best house on the worst street and the Revenue pitches you at a tax band below what your house is worth you will get away with it for some time.

However, if you come to sell the house, you will have to tell the buyer what band you are in and if that is out of whack with the price you are looking for, questions will be asked.

And when you sell the property for a price in a band two or three steps above the one you have declared, the Revenue will come looking for you.

I’m scared. I don’t want to get into trouble but I don’t know if my house is worth €195,000 or €205,000. What should I do? 

Revenue will have 1.9 million houses to tax and are unlikely to be poring over every return with forensic detail.

It wants to get the money in and will make allowances for people who make honest mistakes in pricing.

If you put €195,000 instead of €205,000 on the form, it seems unlikely you would have your door broken down by the authorities demanding an extra €2 a week.

What will happen if my home is worth more than €1 million? 

You will have to get the property professionally valued.

Yes, you will have to pay for that valuation but if, unlike the rest of us, you live in a house worth more than €1 million, you can probably afford the €200 it will cost to make sure the price is right.

So what do I do when I get the letter? 

You select a payment option and complete the relevant details. You indicate the band number that corresponds to your property and you indicate the tax due.

You sign the form and post it back to Revenue.

Then you wait for them to take the money.

The online process is easier but the same questions will have to be answered.

What happens if I don’t get a letter looking for the tax? 

It doesn’t matter. If you are liable to pay the tax, you are liable to pay the tax, even if the letter gets lost in the post.

I am a landlord – who pays: me or my tenants? 

It is very simple. The owner pays. In the event that a property has multiple owners or if it is owned by a business, a number of children or a separated couple, then they are all liable, but they need to designate one person to pay the tax.

And if I just don’t pay? 

To paraphrase Liam Neeson in Taken: They will find you. And they will kill you.

Or at least they will charge you 8 per cent interest on whatever you owe.

Report by CONOR POPE - Irish Times