Government is greatest beneficiary of property boom, survey finds
The Irish Home Builders Association (IHBA) did a revealing exercise in which they broke down the price of the average new house into its various components and discovered the greatest single beneficiary of the property boom was the exchequer.
It is estimated the total revenue to the exchequer from new homes last year was €5.7 billion which accounted for 17% of the entire tax take from all sources for the year. VAT alone, applied at a rate of 13.5%, accounted for €1.3 billion.
That means VAT added a massive €26,700 to the price of the average house so it would seem that the Government is on the one hand expressing concern about the plight of the house-buyer while at the same time adding to their woes.
The Department of Finance agrees it could indeed reduce VAT on new homes to as low as 5% under EU legislation but says there is no guarantee that house prices would fall by an equivalent amount.
It also says the revenue implications would be "significant", costing €800 million a year and creating pressure for similar reductions on other goods in the 13.5% bracket. In other words, no, there won't be a VAT reduction.
Developers are no more likely to help trim prices. IHBA director, Hubert Fitzpatrick, says that, contrary to popular perception, profit margins were modest on housing schemes with the average development yielding around €12,000 per house out of which 12.5% corporation tax was due.
"Houses are being keenly priced because what you find now is a far better finish. The price now will include kitchens and fittings, electrical goods and other extras that were not included in previous years," he says.
Undoubtedly some home-buyers would happily exist on take-away pizza and candlelight if they could knock the value of such extras off the price but Mr Fitzpatrick insists the trend is customer-driven.
"You have to improve the spec to entice the buyer. There is competition for buyers and builders are responding to what buyers want."
Apart from pointing out the exchequer's hefty take from the house market goldmine, the IHBA highlights the role of land-owners in the drama. Land costs are "phenomenal", says Mr Fitzpatrick, despite the introduction of the '20% rule' which requires developers to hand-over up to 20% of their site, the houses built on it or the value of the development to the local authority for use for social housing.
The loss of value is not reflected in land prices, he says, so it has to be spread around the remaining 80%, driving up the price of the resulting houses. The Irish Farmers Association (IFA) begs to differ from this point of view.
"It suits developers to blame landowners because it masks the massive profits they are making," says secretary of the IFA's industrial committee, Jim Devlin. "It is not farmers who have profiteered; it's property speculators. Usually the landowner makes a modest gain on the sale; it is at the next stage that the big money is made."
Regardless of how a house price is made up, the end price is only the start of the expense for the buyer who faces estate agents fees of at least 1.5% the value of the property, and a solicitor's bill of at least 1%.
Competition law prevents the Law Society or the Irish Auctioneers and Valuers Institute (IAVI) from setting guidelines for fees but IAVI president, Aidan O'Hogan, says fees in Ireland have almost halved in the last 20 years and are low compared to the rest of Europe and the US where 4-6% is the norm.
They are unlikely to go any lower, he adds, as the industry is already highly competitive and anything lower would not cover costs.
Surveyors fees are another extra not reflected in the price tag but they are small fry compared to the biggest expense facing a home-buyer the mortgage. Even with interest rates at historically low levels, the €225,000 house, based on a 90% mortgage over 25 years, ends up costing €320,151 of which €95,151 goes straight into the bank's pocket.
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