Increase of 1% may add €2,000 to cost of average home for new buyers, warn experts

NEW house buyers have been hit by the Government as the 1% increase in VAT may add up to €2,000 to the cost of an average home, experts warned last night.

Even though first-time buyers got a small boost from an increase in mortgage interest relief, the cost of what they buy is likely to go up by several thousand euro - which prompted one commentator to say that what Mr McCreevy gives with one hand is being pocketed again by the other.

The 50% increase in stamp duty to a new maximum of 9% on commercial property will not only hit businesses, but experts felt this extra cost would be passed down to consumers.

Chartered Surveyors in the SCS and estate agents in the IAVI and IPAV warned it could result in an outflow of funds to other countries such as Britain where the rate is just 4%, would devalue existing portfolios and would impact on pension funds.

Over 1 billion has already been invested this year in Britain by Irish investors, while the amount remaining in the Irish economy is slackening.

“The commercial market is already in slowdown mode, this will put the brakes on even more,” said a surveyor.

Auctioneers’ body the IAVI urged builders to try and absorb the 1% VAT increase in house prices “wherever possible”. However, Ciaran Ryan of the Irish House Builders Association forecast that the new VAT rate will be reflected in house prices shortly. Mr Ryan said the Government already gets up to 37% of the cost of a new house, or €74,000 on the cost of an average home, while in Britain the VAT rate on new homes is zero.

“The Government seems intent on increasing the cost to the buyer,” Mr Ryan said, pointing out that this sector returns in excess of €3 billion per annum to the Exchequer.

The Budget set a termination date of December 2004 for the ending of capital allowances across a wide range of property investments, including urban, town and rural renewal, living over the shop schemes, student accommodation, multi-storey car parks and park and ride facilities. Other changes included the ending of capital allowances on holiday cottages and capital allowances for hotel investment, with building allowances for this sector now spread over 25 years.