Stamp duty a bit of good news in all the doom and gloom

IN THE midst of all the doom and gloom, the recession, the IMF, the banks and the budget there was one good news story which got very little attention — at least a lot less than it deserved.

The economists scarcely mentioned it, the newspapers put it well off the headlines and Pat Kenny virtually ignored it.

By now you are probably wondering “what is it”? Its name does not conjure up excitement and misleads the casual reader. It is a boring subject with a nasty reputation.

OK, I’d better tell you — it’s stamp duty.

Remember it?

It was the petrol on the wildfire and the mainstay of government income during the boom years.

They got 9% of every property you bought (other than your first home). But the gold rush ended like all gold rushes — the mother lode dried up. Now in the most recent budget Mr Linehan acknowledged this fact and changed the tax from (up to) 7% to 1% while charging new buyers, who were previously exempt, the same figure.

If we take the figure of €350,000 as the price of a three-bed semi, at the peak, the value of the house has reduced to about €200,000 and the total saving is now more than €150,750, ie about half of the price at peak. We have a property on our books that has saved a buyer €43,500 since last week!

Should you buy now?

What if they reduce further?

How will you know when you have reached the bottom?

To answer the last question first, I will tell you but you will have to wait two years because the only way you will know is with the benefit of hindsight.

What if they reduce further? Well, rents have stabilised and are giving a good return by comparison to other forms of investment. So the potential to fall further is limited.

Should you buy now? As I said above, residential property is giving a good return — up to 5% gross on your investment. Even without taking potential for any capital increase into account!

Will your stash of cash under the bed do better — with 0% and no potential for capital appreciation? Doubtful. Is your money in the bank safer than a stately pile of bricks and mortar in a leafy suburb? Will your money in a deposit account yield 5% and appreciate? Unlikely.

In the last big recession the price of farmland, particularly in Co Cork, rocketed from about £700 per acre in 1975 to a peak of £6,500 in 1979. We were so busy then that we used a helicopter to fly the clients from field to field,

An overheated economy resulted in the main banks putting a stop to lending and the price of farmland, along with the sales grinding to a sudden halt. Interest rates hit almost 20%.

We plodded along in that mode for about three years, able to procure mortgages only through county council loans, “pull” and the generosity of insurance companies. It was a dismal market. The ministers of hardship had their finest hours. Belt-tightening was our daily exercise, until slowly but surely the tide turned. Interest rates gradually reduced, mortgages became more available and the price of property increased, doubling the values in about the next four years.

I have read !that the 1920s-1930s recession panned out the same way.

So, who made the money? Of course it was the people who bought before the upturn. Not the people who were waiting for the bottom, they only believed that we had hit the bottom when it was too late.

If prices drop further who will buy? The people who realise that they are getting a good return on their investment, of course. I’m told every day that “it’s a buyers’ market”. My reply is that “You are only a buyer if you buy”. Otherwise you are only a “wall tapper”.

* Don Murphy is an auctioneer based in Glanmire, Co Cork.