Providing a single voice for those involved in the property development industry in Ireland

Position Statement

Aims and Objectives of the IPC

  1. Banks and Lending Institutions To communicate with and meet the Chief Executive Officers of the various associated banks and lending institutions, to include Allied Irish Banks, Bank of Ireland, Anglo Irish Bank, K.B.C. Bank, Ulster Bank Limited, A.C.C. Bank, Bank of Scotland (Ireland) Limited, and the EBS, the Irish Life and Permanent TSB, the ICS and the I.N.B.S. In these communications to express the concerns of our members and others involved the property business in their ongoing dealings with the associated banks and lending institutions.

    The matters to be discussed and referred to will include the following:
    1. Agreement as to the introduction of a Code of Conduct in relation to investors, builders and developers with reference to loans where there are impaired investments and development property.
    2. An acknowledgement as to the actual reduction in the value of impaired investments and development property, and the reduction in investment property rental income since 2006 to date.
    3. An acknowledgement, on the understanding of number 2 above, that banks and lending institutions consider an agreed reduction in the loan value in proportion to the agreed reduction in the impaired investment / development property value. Such reduction may be comparable to the reduction in the value of loans to be acquired by N.A.M.A.
    4. The reduction in the loan amount in proportion to the agreed reduction in the value of an impaired property for the purpose of accommodating a five year business plan and work out of an investment/development property to include an agreed interest rate and non-payment of capital for the said period of the business plan.
    5. No increase in the margin rate upon the review of a loan facility.
    6. No alteration from one month Euribor to three months Euribor rates upon the review of a loan facility.
    7. No additional claim for Capital Repayments upon the expiration of an interest only period, upon the review of a loan facility.
    8. No imposition of penalty charges in the event of default of payment of either an increased interest charge or the demand for capital repayment, or both.
    9. Provision to be allowed for the ongoing management and the costs and expenses, to include insurance and other approved expenditure incurred in relation to an impaired property investment.
    10. Proposals for an agreement to be entered into where by the bank can take an equity stake in place of debt or in consideration of the reduction of the loan amount in respect of an impaired investment/development property and where there is an agreed business plan.
    11. The "warehousing" of an impaired investment/development property for an agreed period of time on an agreed interest rate and an allowance for the payment of management charges for the period of the agreed business plan.
    12. Clarification as to the position of borrowers where there is positive equity in relation to investment/development property, which is not impaired, and which provides rental income which is sufficient to meet interest only payments, and not capital repayments, or increased interest charges upon the review of a loan facility and where the interest only period has expired and the loan which is the subject of review between the borrower and the lending institution for an additional period, say five years, where it is projected that reasonable interest payments can be met but capital repayments cannot be met.
    13. Awareness as to the present positions whereby 75% of interest only is allowable for tax purposes in relation to a residential investment property.
    14. Awareness as to the fact that capital repayments can only be derived out of after taxed rental income and are not tax efficient.
    15. Awareness as to the fact that in the event that a new vat-able property is sold by a builder / developer that same includes 13.5% vat and which tax must be paid to the Revenue Commissioners, whether or not a property has been sold at a profit or loss. Where a property is sold at a lost this compounds the loss suffered by the builder/developer and provision for payment of same to the Revenue Commissioners must be allowed for.
  2. Financial Services Authority of Ireland Financial Regulator To communicate with and meet the Governor of the Central Bank and Financial Services Authority of Ireland, Professor Patrick Honohan, who is also the Financial Regulator to express the concerns of people in the property business in relation to their dealings with the associated banks.

    To lobby for the introduction of a Code of Conduct for the banks in relation to their dealings with property investors, developers and builders who have loans in relation impaired investment properties and in particular with reference to the banks and lending institutions conduct with such customers.

    Express our concerns as to the lack of proper regulation by the Financial Regulator and the inappropriate actions of banks and lending institutions in the past and the bad bank lending practices adopted throughout the period from 2000 to 2007 and in relation to excessive loans to developers, builders and investors, thereby creating a property bubble during this period.

    This lack of regulation has contributed to the recession in the property business, and the substantial reduction in property values and rental income, destroying the businesses and the livelihoods of many developers, builders and investors and precipitated the loss of jobs in the construction industry down from 257,000 to140,000 and with the reduction in employment continuing.

    There is also the issue of the substantial reduction in the tax yield from the property industry which in 2006 contributed €9 billion in various taxes to include capital gains tax, stamp duty and vat. Approximately 40% of the sale price of each new housing unit constitute various taxes. In 2006 the property industry constructed 90,000 new housing units.

    There are now estimated to be 302,000 vacant housing units in Ireland, to include holiday homes, rental properties, unsold newly developed residential buildings and properties where people were not in occupation at the time of the survey.

    Precise information is required to ascertain the number of unsold new residential units which remain vacant at present.
  3. N.A.M.A To communicate with and meet N.A.M.A. so as to inform members as to the operation of N.A.M.A. and how its operation may affect people in the property business.
  4. Political Parties To communicate with the Government, the Minister for Finance and all the political parties to express the concerns of people in the property business in relation to their dealings with the associated banks and lending institutions, so as to seek the introduction of a Code of Conduct in relation to property investors, developers and builders who have loans in relation impaired investment properties.
  5. Economic View Because Ireland is a member of the Euro it cannot devalue its currency we have to address our economic problems in a different fashion. Accordingly for the purpose of becoming competitive and to attract inward international and foreign investment it appears that Ireland must reduce the cost of labor and services together with a reduction in property values, rental charges and other associated costs (Local government charges, energy and telecoms).

    There is furthermore the issue of the ongoing banking and financial crisis and the lack of finance available for lending to industry and businesses resulting in a reduction in finance available and in circulation which has, as a consequence, a reduction in business activity and loss of employment. It appears that N.A.M.A will not provide the panacea which was originally understood when N.A.M.A. was first introduced, and so further policies will have to be devised.

    It is noted that N.A.M.A. only relates to some of the banks and lending institutions, (A.I.B, BOI, Anglo Irish Bank, Irish Nationwide and EBS), and their loans which relate to land , development land and associated loans, and furthermore will not deal with loans or accumulated loans to a borrower which are below €5 million. It is understood that in relation to these non N.A.M.A loans the country is accumulating considerable problems which may well stifle any future growth.

    A strategy to include tax incentives and concessions will have to be devised to enable a national economic recovery; these initiatives will have to include the property business.

    With the cooperation of the government, the banks, the public and those in the property business, we can create a viable and sustainable property business which can pay its part in an economic revival. We believe a sustainable level of property can provide up to twelve percent of gross domestic product, which together with drive employment and profit from which will create the necessary taxes to enable the Government to fund and to provide essential services to the public.

    There has been a devastating loss of jobs in the construction industry from 257,000 in 2006 to 140,000 at present and this reduction in employment is continuing with a likely employment rate of under 100,000.

    There is also the issue of the substantial reduction in the tax yield from the property industry, which in 2006 contributed €9 billion from various taxes to include capital gains tax, stamp duty and vat in 2006.

    Vat at the rate of 13.5% is included in the sale price of all new properties, for example if a first time buyer purchases a home for €250, 000, €33750 is returned to the exchequer.

    Approximately 40% of the sale price of each new housing unit constitutes various taxes. In 2006 the property industry constructed 90,000 new housing units.

GENERAL

  1. Banking Enquiry The IPC welcomes the proposal to hold a banking enquiry to identify the contributory factors, relating to the Banking and Lending Institutions, which contributed to the property bubble and the consequential adverse effects on the property business in Ireland for the reasons stated in this document.
  2. VAT at 13.5% on the Sale of Any Newly Developed Building to include Residential Units The issue as to payment of VAT at 13.5% in respect of the sale of a newly developed property, which is being sold at a loss, and which in turn compounds the loss to the developer must be addressed by the Minster for Finance.

    New Vat Regulations on the Sale of Property The introduction of the new VAT regulations in July 2008 has resulted in considerable and wholly unreasonable complexity in the property business resulting in the Law Society of Ireland introducing pre-contract Vat enquires (April 2009 edition) amounting to 130 enquiries.
  3. Stamp Duty The rates of stamp duty, (at 7% between €125,000 and €1,000,000 and at 9% for a residential property in excess of €1,000,000 and at 6% for investment property), which are at present a deterrent to a purchaser/investor must be reviewed downwards, if not abolished, or deferred for a period of time, to encourage purchasers/investors back into the property market.
  4. 80% Windfall Capital Gains Tax (Section 240, part 10, schedule 3 by way of amendment of the Tax Duties Consolidation Act 1999, Section 649 A)
    The Introduction of an 80% Windfall Capital Gains Tax, in the N.A.M.A Act 2009, on any increase in the market value of land, from rezoning, is punitive and will impose a considerable burden on an industry which is in recession. This will create doubt and uncertainty as to the value of land for redevelopment and banking purposes, and introduces a further complication, and an additional tax, in a business which is already overburdened and over taxed.
  5. No further upward only rent reviews in respect of new leases granted after the 28th February 2010. The new Landlord and Tenant amendment, introduced by way of regulation, effective from the 1st of March 2010, which provides that in relation to all new leases, granted after the 1st of March 2010 must include rent review provisions, which provide for the upward and/or downward review of rent to the open market rent, at the time of review. This amendment alters the existing situation, whereby rent reviews are upwards only or at the same level as the existing rent upon the date of review, but no lower. This amendment does not affect existing leases and only effects new leases created after the first of March 2010.

    The above amendment has caused difficulties in valuing property and an inhibition in the property business which will cause a disincentive to invest in property and will undermine confidence in the property business.
  6. Building Energy Rating Certificate (B.E.R.) In respect of any sale or lease of property it is now a requirement that a Building Energy rating certificate must be provided by the Vendor or Lessor. This is a necessary and deserving requirement. However, it now involves additional procedure together with cost and expense to be discharged by the owner of a property.
  7. Non Principal Private Residence (N.P.P.R.) In respect of all non Principal Private Residences and Residential Units the owner is now obliged to pay an annual sum of €200 to the local authority. This creates an additional procedure and cost and expense for a property owner to include investors.
  8. Reduction in Contract Labour Agreement Minimum Wage The agreements entered into between the building trades, to include the electrical trade, the carpentry trade and the plumbing trade, with the Construction Industry Federation (C.I.F.), establishing a minimum wage per hour, (i.e. Electricians €30 per hour), will have to be reviewed, because of the economic crisis, and reduction in costs are required, so as to enable the property business to function at an economic cost level. This will prevent the development of a “black economy”, and which otherwise may arise.
  9. Inquiry into the National Wage Agreements and Social Partnership During the Period 2000 – 2004 An inquiry is required in relation to Social Partnership and the National Wage Agreements, which were entered into between the period from 2000 to 2004, leading to excessive and unnecessary increases in the costs of labour and wages throughout the economy, to include benchmarking, which created a situation whereby the Irish economy, which was a very competitive and attractive economy for inward investment, in 2000, deteriorated into a uncompetitive economy by 2004 due to excessive wage increases, thus rendering Ireland unattractive for inward investment and the loss of employment in manufacturing industry. This was not apparent due to the property bubble which provided exceptional employment and taxes from the property industry. There should be a full disclosure of all of the minutes and the attendances arising from the Social Partnership National Wages Agreements during the period 2000 to 2004 so as to fully disclose what transpired in the Irish Economy during that period and who were the parties involved and as to how such decisions and agreements were made.
  10. Family Home The I.P.C. wishes to ensure that the family home of a borrower is fully protected and that a borrower will not be dispossessed of his family home which may adversely affect his spouse and children. It is contended that there is not sufficient protection under the terms of the Family Home Protection Act 1976 as amended.
  11. Planning Laws The existing planning laws must be altered to include the recommendations of the Kenny Report and furthermore to ensure that there is an overall planning strategy throughout Ireland and in urban areas so as to ensure the most economic development of land and the construction of buildings thereon at the most economic cost. The planning laws require amendment so as to “fast track” development, where same is in the national economic interest and for the provision of services and the creation of employment and to avoid unreasonable objections, appeals and delays in processing an application for planning permission.
  12. Regulation of Debt Collection Debt collection by sheriffs, and Revenue Sheriffs and debt collectors needs to be regulated so as to protect borrowers in respect of inappropriate conduct by a debt collector in a civil matters and as already recommended by the Law Reform Commision.
  13. Alteration of Bankruptcy Law The present bankruptcy laws in Ireland, whereby a person once adjudicated as a bankrupt by the High Court, must remain a bankrupt for 12 years in Ireland, is now penal and a disincentive to enterprise. This law must be changed whereby the bankruptcy period of 12 years is reduced to 1 year similar to that in the United Kingdom.

    There should also be introduced a Voluntary Arrangement Scheme by a debtor with creditors and which system is already in operation in the United Kingdom, and is accepted as a successful procedure for debtors and businesses in financial difficulty, so as to ensure that they can survive and continue to trade successfully for the mutual benefit of all parties concerned.