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Real Estate Investment in Ireland

Padraic Whelan, Deloitte

During most of the last decade, Ireland has come through a very difficult economic and financial crisis and certainly, over the course of the last twelve months, it has become very noticeable that not only are the economic indicators of the country greatly improving with significant monthly increases in employment, it is also very pleasing to see that the level of real estate acquisitions has ‘taken off’ relative to where it has been at.

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ome commentators would have said that the level of writedowns in the value of property were such that the market almost overcorrected itself given all of the problems that have

happened over the last several years and therefore there is a view that there is likely to be value to be obtained over the medium to long term going forward.

There has been a number of very significant real estate transactions completed last year with a number of assets and loans released at the end of 2013 which have completed in the past two months. There is now an expectation that the number of loan sales and asset disposals will increase again over the coming months as both the banks and our National Asset Management agency accelerate their disposal strategies.

In addition, whilst there continues to be a strong focus on Dublin assets, there is more interest in Real Estate in cities outside of the capital where there has also been an improvement in consumer sentiment in recent months.

It is interesting to note that the market is not just about commercial property. The residential market is beginning to really improve giving the significant undersupply of residential property particularly in Dublin where there has been very little new build over the last several years and the research indicates that Dublin needs at least a further 6,000 units per annum to meet demand. The result of this demand is evident in that rents in Dublin are rising, vacancy

levels are very low and where new developments in good locations come to the market they are selling fairly quickly despite the bank’s not being back to a normalised lending position.

Ireland’s new REIT regime will also bring a level of stability to the property recovery in Ireland as these vehicles will acquire and hold for the medium to longer term quality real estate assets. This will obviously allow a range of investors to have access to the market through investing in a Plc. Currently, there are two REIT’s in existence, having raised over €700m of equity.

The tax regime in Ireland is quite attractive for all investors in the sense that any property that is acquired up to the end of 2014 will be able to benefit from a capital gains tax exemption once the property is held for a minimum period of seven years. Ireland is a relatively easy place to do business, there are straightforward structures to acquire real estate. Stamp duty is capped at 2% and one can decide whether it is appropriate to acquire real estate through a corporate, through a fund, partnership, hold personally or perhaps invest through our new REIT listed vehicles to give a spread across a number of asset classes.

The choice of vehicle to make an acquisition will depend on circumstances and ultimate intention. Many will use special purpose vehicles or larger acquisitions may justify a fund vehicle. Some individual investors may decide to hold personally albeit Income Tax and levies can be quite high, but perhaps mitigated with sufficient gearing to reduce taxable profit.

Whilst the size of the country is relatively small, Ireland has attracted in substantial investment from the largest companies in the world, particularly in the technology and pharma industry with associated significant job creation resulting and this trend continued even during the last few challenging years. Such investment underpins the demand for Real Estate.

All of the pointers at the moment are showing very strong demand, the need for more product and multiple bids are the norm every time a loan book or properties come to the market. Thus, we are certainly well poised to see very significant activity in the coming years and, hopefully, deliver a renewed prosperity for Ireland.

About the Author Padraic Whelan is a Tax Partner in Deloitte Ireland, based in the Dublin Office and he leads the Real Estate & Infrastructure practice for the Irish firm. He has acted for many of Ireland’s largest property developers over the past two decades and also represents some of the more recent foreign international acquirers of Irish real estate. Padraic and his colleagues acted for Ireland’s second REIT, Hibernia REIT Plc, which floated on the Irish and London Stock Exchange in December last.

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