Plans to further strengthen the commercial property sector — through the introduction of Real Estate Investment Trusts (REITs), which allow for investors to finance property investment in return for attractive yields and special tax considerations — have been widely welcomed as one of the main positives from yesterday’s budget proposals.
Michael Noonan, the finance minister, said the introduction of REITs may attract new investment and assist Nama in deleveraging its portfolio.
They may also allow it to “bring more sustainable activity to both the commercial and residential property markets”, he said.
However, while Mr Noonan noted that last year’s 4% reduction in stamp duty has helped bring stability to the commercial property sector, and demand for high-quality large office space has strengthened, he didn’t go into too much more detail regarding his REITs plan.
&John Heffernan, a tax partner with Ernst & Young, said that the introduction of such trusts, coupled with €2bn of Nama vendor finance, marks “an extremely positive development and will help underpin the recovery of the Irish commercial real estate market”.
Mr Heffernan said: “The country has previously been disadvantaged when attempting to attract foreign investment in real estate as investment in the sector via REITs was not facilitated, as was the case in other economies including the US, Britain, France, and Germany.”
Mr Heffernan added that the Irish REIT scheme should be fully transparent for tax purposes; should attract experienced fund managers with global reputations; should work as a trading market so that investors can have a degree of liquidity; and that the minimum investment size for the establishment of an Irish REIT should take account of the scale of the Irish market.
“It has been an open secret that dozens of potential investors are sitting on the sidelines waiting to pounce on Irish property assets,” said Padraic Whelan, the head of real estate and infrastructure at Deloitte.
“These measures on REITS will bring Ireland into line with international standards. It will make it easier for those investors who wish to buy into a portfolio of properties to do so and should help stimulate a recovery in the commercial property market.”
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