chartered surveyors prebudgetsubmission_2014

7/27/2019 Chartered Surveyors Prebudgetsubmission_2014

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Budget 2014

Submission to the Department ofFinance and the Department of

Public Expenditure and Reform


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Mr Michael Noonan TDMinister for Finance

Department of Finance

Merrion Street

Dublin 2

Mr Brendan Howlin TD

Minister for Public Expenditure and Reform

Department of Public Expenditure and Reform

Merrion Street

Dublin 2

Dear Minister

Budget 2014

On behalf of the Society of Chartered Surveyors Ireland, I would like to submit the attached report for your

consideration in advance of Budget 2014.

The Society is the largest professional body in the construction and property sector in Ireland, and our

mandate is to provide thought leadership in these sectors in the public interest. This over-riding public interest

mandate has determined the recommendations in this brief submission. They are intended to bring new

activity to the sectors, prevent any further erosion of the skill-base and capacity of the sectors, and ensure

that the construction sector and property market can perform in the optimum way to ensure economic

recovery and improve quality of life.

Overshadowing both sectors is the continued absence of private finance. In both the construction industry and

the property sector, there is a need to ensure that viable and necessary developments to meet the needs of

a new economy can secure the necessary finance to reach a successful conclusion.

Employment in the construction and property sectors has fallen dramatically in recent years. Nonetheless,

these sectors provide employment for over 5% of the Irish workforce; their jobs must be protected and

new job opportunities created if Ireland is to overcome its unsustainably high unemployment level and

return to growth.

Therefore, the recommendations which we make to you have two themes: the promotion of new financial

support to allow the completion of necessary development and the maintenance and growth of skilled

employment in the construction and property sectors.

My colleagues and I would be delighted to meet with you, and to continue our excellent engagement withofficials in your departments, to discuss these recommendations with you in more detail.

I hope that you will consider them in advance of the Budget.

Yours sincerely

Michel OConnor Ciara Murphy

President Director General


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Contents

The Economy

Table 1: Economic Growth Forecasts 2012 2014

Part One: Construction

Table 2: Value of Construction Output 2011 2013

Graph 1: Volume of Construction Output 2005 2013

Support economic growth through increased, targeted public investment

Graph 2: Construction Tender Price Index 1998 2012

Rollout of Capital Investment

Table 3: Capital Investment in Key Vote Groups to End-May 2013

Graph 3: Public Capital Investment as % of GNP 2003 2013

Graph 4: Public Capital and Current Expenditure 1997 2013

Graph 5: Annual Change in Public Capital and Current Expenditure 1997 2013

Supporting Efficiencies in Public Procurement

Built Asset Management

Investment in Public Buildings

Promoting Private Investment in Construction and Regeneration

Promoting Energy Retrofitting

Part Two: Residential Property

Encouraging International Investment in Ireland

Increase the energy efficiency of the built environment

Table 4: Office Refurbishment Options

Reform of Tax on Agriculture

Part Three: Commercial Property





Budget 2014 Submission to the Department of Finance

and the Department of Public Expenditure and Reform

BUDGET 2014


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Construction

Targeted investment of capital and PPP funds in infrastructure which will support growth and meet the

future demographic, social and economic needs of Ireland.

Delivery of alternative funding for public works, coupled with measures to support improved bank

financing of private construction projects.

Published multi-annual pipeline of public and semi-state capital projects, overseen and evaluated

through improved governance of the construction sector, an improved planning system and

streamlined procurement process.

The creation of the post of Chief Construction Adviser to the Government, to co-ordinate meaningful

engagement between the sector and the State.

Investment in, and rationalisation of, public buildings to reduce running costs and improve the energy

efficiency of the public estate.

Reduction of VAT to 5% on labour and professional services for property repairs, maintenance, lettings

and management of residential property to reduce exposure to the Hidden Economy and drive high

standards of energy efficiency in the built environment.

Residential Property

Introduction of standardised mortgage application forms to ease mortgage application process with

unsuccessful applications open to review by an independent mortgage review body.

Address supply problems through the promotion of increased urban densities and development of

brown field sites; nationwide expansion of pilot schemes to refurbish Georgian areas.

Commercial Property Promotion of increased international investment in Irish commercial property through the support of

Real Estate Investment Trusts coupled with measures to support small-scale domestic investment by

pension and insurance funds in residential and commercial property on a syndicated basis.

Reduction of VAT on the retrofitting of private and public commercial buildings to improve the energy

efficiency of the Irish built environment; and a managed process of rationalising the public estate to

lower running costs.

Reform of the taxation regime for inter-generational transfer of agricultural property, including CGT

and re-instatement of roll-over relief.

Key Recommendations


and the Department of Public Expenditure and Reform2


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The Irish Economy in 2013

The Irish economy continues to struggle to grow against a background of continued European and global

austerity. Domestically, low GDP growth is forecast for 2013 and 2014, but this will be fuelled by continued

strong exports; it is expected that in the absence of growth in indigenous businesses, public and private

spending will remain widely depressed. Unemployment remains high, and emigration continues to present

significant challenges to the skill-base and capacity of Irelands productive sectors. Deals on Irish debt which

have been secured in 2013 give some room for optimism that increased domestic investment may soon be

possible. Furthermore Irelands improving international reputation may open new funding sources for private

investment, particularly from the European Investment Bank.

Table 1: Economic Growth Indicators


and the Department of Public Expenditure and Reform 3

(% annual change) 2012 2013 (f) 2014 (f)

GNP 3.4 0.8 1.5

GDP 0.9 1.1 2.3

Domestic Demand -1.5 -0.3 0.8

Private Consumption -0.9 -0.3 0.7

Public Expenditure -3.7 -2.4 -2.3

Investment 1.2 3.1 5.3

Exports 2.9 2.6 4.0

Imports 0.3 1.7 3.2

Unemployment Rate 14.7 14.1 13.5

Employment Growth -0.6 0.3 0.9

Wage Growth 0.8 0.7 0.9

CPI Inflation 1.7 1.2 1.7

General Government Balance -7.6 -7.3 -4.9


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Contents

Table 2: Value of Construction Output 2011 2013


Support economic growth through increased, targeted public investment




Graph 3: Public Capital Investment as % of GNP 2003 2013






Promoting Private Investment in Construction and Regeneration




Part 1

Construction


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The Irish Construction Industry in 2013

At the time of Budget 2014, the Irish construction industry will be half-way through its sixth year of recession.

During that period, the output of the industry has fallen sharply from a height of 38bn and employment in

the sector has halved. It is widely accepted by Government and the sector that in 2013, annual construction

output should be in the region of 16bn to 20bn if it is to perform at an appropriate level to meet the needs

of the economy. As the CSO Production in Building and Construction Index shows, the bulk of this decline

has been in the new residential property sector, but significant and prolonged declines in the volume of

construction output have been seen in the civil engineering and non-residential building sectors.

Reports produced over the course of the first six-months of 2013 suggest that actual construction output is

not likely to exceed 7.5bn this year.

Table 2: Estimates for the output of the construction industry in 2013 - 2014

During low levels of private activity, the output of the construction sector is largely determined by changes in

Government capital investment and the availability of non-traditional project financing. Thus, it is vital for the

future of the sector that public investment in construction is realised, so that each component sector of the

industry can perform at an optimum size.

Part One: Construction



1

2012 2013 2014

Society of Chartered Surveyors Ireland 8.70 bn 7.50 bn 7.10 bn

Central Bank of Ireland 8.80 bn 7.99 bn 7.73 bn

BruceShaw 8.70 bn 7.48 bn 7.00 bn

Davis Langdon 8.50 bn 7.75 bn 7.50 bn


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While the loss of employment and output are quantifiable, the erosion of the sectors skill-base and its loss

of productive capacity are less easily quantified. Measures contained in Budget 2014 should not simply be

aimed at increasing the output of the sector, but ensuring that the sector retains the skills and diversity of

professional services to support economic recovery. The construction sector has invested heavily in new

products and processes during the last decades. This has reduced the cost of construction significantly; the

exchequer benefits of this private investment should be harnessed and utilised through continued investment

by the State.

Recognising the importance of a strong, dynamic, diverse and professional construction sector to economic

recovery, the industry has worked closely with Forfs to produce a strategic report on the future direction of

the construction industry to 2015. This report contains important reforms of the governance of the sector and

the way in which contractors, developers and construction professionals engage with Government, including

IDA Ireland, Enterprise Ireland and the planning authorities. The Society calls on Government to publish this

report and implement its recommendations and, for its part, the Society repeats its commitment to working

with Government and all other stakeholders to create better and stronger engagement which will avoid

repeating the errors of the past, and help the sector do its part to grow the economy.



2005

2006

2007

2008

2009

2010

2011

1012

2013

A ll c o n s t r u c t io n C ivil E n gi n ee rin g R e s id en t ia l N o n- R e s id en t ia l

140

120

100

80

60

40

20

0

Source: CSO (2005 = 100%)


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Support economic growth through increased,

targeted public investment

Irelands positive demographics will place increased pressure on the States built environment and the existing

physical infrastructure network over the next decades. The Central Statistics Office forecasts that between

2011 and 2021, an additional 143,000 households will be formed in Ireland; as Ireland returns to positive

inward migration and homeowners and businesses benefit from improved economic activity, public investment

in infrastructure to support this increased demand is required, not only to maintain the quality of our existing

infrastructure but to anticipate new demands created by a new economy.

The National Competitiveness Council has recently noted: Sustainable public and private investment

which supports the development and maintenance of an export-friendly environment by utilising world-

class technology and infrastructure to create and deliver goods and services efficiently to customers is an

important determinant of competitiveness. Thus, by investing in our infrastructure now, Ireland can make

a real difference to our future economic competitiveness.

Future demographics mean that we will experience acute pressure on our stock of public hospitals and

schools. By 2021, there will be an additional 76,000 children aged between 5 and 12 years old living in

Ireland, and 104,000 additional children aged between 13 and 18 years old. This increase in the number of

school-age children is likely to mean Ireland requires an additional 2,000 primary school classrooms and

4,000 additional secondary school classrooms if we wish to maintain current teacher: pupil ratio.

An ageing population will have an impact on the type, size and location of health service providers, as well

as residential accommodation. Government should prepare to construct these much-needed public buildings

now, so that they can be in place ahead of need. A national Predict-Provide model of ex-ante investment in

infrastructure should be at the heart of routine forward-looking dialogue between the construction sector,

state agencies and planning authorities. A failure to properly target and sequence the development of

necessary infrastructure on a regional and sectoral basis will simply repeat past errors of undersupplying the

right type of infrastructure.

The purpose of infrastructure is to create a national network of public utilities to support economic and socialactivity, and improve quality of life. As the nature of economic activity changes, so the infrastructural

requirement to support that activity must also change. It is important that infrastructure is provided ahead of

need, utilising a solid prediction-model. Having almost completed the road and rail networks, and having

upgraded ports and airports, Ireland must now continue to invest in its future through the provision of a

national broadband network and full national mobile telephone and 3G coverage.

According to the National Competitiveness Report 2013: it will be important that advanced broadband

services are quickly made available in Irish cities and towns to support the growth of emerging high value

information-intensive industries such as digital media, cloud computing, e-games, healthcare and




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education. It is, therefore, worrying that Ireland has one of the lowest fibre broadband connection rates in

the OECD-28, and that it fell two places in the rankings between June 2011 and 2012 to 25. This slip inour international competitiveness will undermine the governments policy to make Ireland a high-tech

economy, and a country in which high-tech businesses should locate.


During a period of low levels of activity in the construction sector, and low tender prices, planning, design and

construction of this anticipated demand for new public buildings and infrastructure should be commenced with

immediate effect. By harnessing innovation in design and construction methods, it is possible to construct

schools and other public buildings now, and lease them to the private sector for office accommodation before

retrofitting them to be used for their original purpose when pressure so demands. There is an opportunity to

design world-class innovative building solutions and generate a rental income from the private sector to off-set initial construction costs.


The current Public Capital Programme to 2016 commits the Government to an investment of 17bn, of which

some 70% will be spent on construction-related works. Additional announcements in 2012 and 2013 of further

capital expenditure on minor works such as road upgrades, local authority energy retrofitting and school-

building extension and retrofitting have been welcomed by the sector.



199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

2011

201

2

Source: Society of Chartered Surveyors Ireland (1998 = 100)

160

150

140

130

120

110

100

90

80


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According to the Stabil ity Programme Update and other Government plans, the total capital allocation for

2013 is 3.4 bn, some 7.3% lower than 2012. According to Budget Day projections, total scheduled capitalexpenditure to the end of May 2013 should have been 859m. Actual expenditure for this period was 751m,

a 12.6% under spend against profile. The Society is concerned that a pattern of monthly under spending has

emerged in many line departments, most especially the Department of Environment, Community and Local

Government whose capital investment programme is some 25% behind profile.

Comparing this years output to that of 2012, during the year to end-May 2013, total actual public capital

investment in Ireland fell by 18.1% compared to the same period of 2012. It is vital that if projects receive

funding approval, that they are rolled out as per schedule. The Society looks forward to working with

Government on identifying blockages to expenditure and remedying them.


Source: Department of Finance. Exchequer Statement June 2013

As a proportion of overall Government expenditure, capital investment has fallen from 18% in 2008 to 6% in

2013. In 2009, capital investment was cut by 18.6%; further cuts were experienced in all subsequent years

to 2013. This represents a significant reduction in the public investment in Irelands economic future. The

Society recommends that during a period of tight public finances, rigorous ex-ante analysis of investment must

be undertaken. Any further declines in direct exchequer capital investment should be augmented through

increased PPPs and other private finance models. As Irelands international reputation improves, opportunities

for investment from international banks, including the European Investment Bank should be further explored.

Between 2003 and 2010, total public investment in capital projects was between 4% and 6% of GNP, in line

with commitments made in previous National Development Plans which aimed for annual public capital

investment to be in the region of 5.5% of GNP. Since 2010, investment has fallen at a faster rate than the

economy, so that by 2013, the public capital programme (assuming all allocations are invested as per

schedules) will be around 2.5% of GNP.



Vote Group End-May End May Variance Variance

Profile Out-Turn (m) (%)

Communications, Energy and 17m 14m -3m -15.3%

Natural Resources

Environment, Community and 116m 88m -29m -25%

Local Government

Health 138m 74m -64m -46.4%

Justice and Equality 26m 22m -4m -15.5%

Transport, Tourism And Sport 175m 164m -11m -6.5%

Total Public Capital Programme 858m 751m -108m -12.6%


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Graph 3: Public Capital Investment as % GNP 2003 2013




0

1

2

3

4

5

6

7

2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3

Source: Department of Public Expenditure and Reform, ESRI

0

1 0 , 0 0 0 , 0 0 0

2 0 , 0 0 0 , 0 0 0

3 0 , 0 0 0 , 0 0 0

4 0 , 0 0 0 , 0 0 0

5 0 , 0 0 0 , 0 0 0

6 0 , 0 0 0 , 0 0 0

7 0 , 0 0 0 , 0 0 0

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Capital

Current

Source: Department of Public Expenditure and Reform ( thou)


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The Society recognises that funds which will be invested in Irelands physical infrastructure must be borrowed

internationally. This comes at a cost to the tax-payer. Nonetheless, the Society believes that a failure to

maintain a commitment to the quality of Irelands infrastructure will be at a much greater longer-term cost. Past

errors of cost-over-runs and a failure to plan, sequence and deliver an agreed pipeline of works can be

avoided through rigorous analysis of value for money, engagement with practitioners and finding alternative

sources of capital finance.

RECOMMENDATION: Targeted investment of capital and PPP funds in infrastructure which will

support growth and meet the future demographic, social and economic needs of Ireland


The construction of new buildings and the installation of new infrastructure is a complex process, with an

increasingly burdensome tendering and procurement process. The Society recognises that Government must

be diligent in tendering public contracts to ensure the best possible value for money. While supporting value

for money, the Society repeats its call for state agencies not to accept tender bids which are below-cost as

-40.00%

-30.00%

-20.00%

-10.00%

0.00%

10.00%

20.00%

30.00%

40.00%

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Current y-o-y Capital y-o-y

Source: Department of Public Expenditure and Reform


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this will inevitably result in additional costs further along the design and construction stage of development

due to project failure. Accepting tender offers which are priced at below the cost of undertaking the work mayresult in the successful tenderer resorting to using the Shadow economy with further negative impacts on

tax receipts. In tendering for public works, construction firms and design professionals must be assured that

works for which they tender will be commenced and completed as per the timetable announced in

Government publications.

The promotion of investment in Green Procurement and sustainability have the potential to improve the life-

cycle running costs of Irelands new public buildings and infrastructure thereby making Exchequer savings

on overall running costs of public buildings. Building Information Modelling (BIM) is now a key part of public

procurement in a number of developed countries, so there is an opportunity for the Irish Government to

harness international best practice in designing sustainable buildings.

The Society welcomes previous commitments by Government to reimburse the costs of tendering for works

by three unsuccessful bidders and Government and EU efforts to reduce bid-costs. Access for small,

regionally-based construction firms and design professionals to the public procurement process is vital in

order to maintain a diverse and regionally-based national construction sector. The Society recommends that

Government redoubles its efforts to ensure that small, indigenous firms are not displaced by larger multi-

nationals in the effort to reduce design and construction costs. The Society recognises, of course, that value

for money must be at the heart of the Governments construction strategy, but this must not be with the result

of below-cost tendering or the monopolisation of public contracts by a small number of large firms.

RECOMMENDATION: Published multi-annual pipeline of public and semi-state capital projects,

overseen and evaluated through improved governance of the construction sector, an improved planning

system and streamlined procurement process, including the creation of the post of Chief Construction

Adviser to the Government, to co-ordinate meaningful engagement between the sector and the State.


Two key efficiencies can be achieved through strategic management of built assets. It is firstly possible to

improve efficiency and effectiveness in the management of public land and property assets, and secondly

through the use of the value in surplus, under-utilised and non-core Government assets to transform areas

and to accelerate delivery of much needed infrastructure.

The Strategic Investment Board in Northern Ireland adopted such a strategy to the running of their built state

which has subsequently been expanded to cover the following potentials which can come from undertaking

an audit of existing State-owned property:




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Rationalisation of accommodation portfolios

Redevelopment/refurbishment of assets Re-gearing/renegotiation of leases

Master planning of sites

Development of service commercialisation opportunities, and

Disposal of assets, where appropriate.


In April 2011, the McCarthy Report recommended that there should be one state property management

agency and a consolidated register of all state property howsoever owned (Recommendation 51). The Report

also recommended that an annual target should be set for the sale of state property over each of the next

five years (Recommendation 52), and that a study should be completed on the means and feasibility of

privatising the operations of such bodies as the Property Registration Authority Ireland. The Society wholly

endorses these recommendations.

As noted elsewhere in this Submission, reports produced for the private residential sector and the private

commercial sector have shown the positive return on meaningful retrofitting works. Ireland is a net importer

of energy, so any effort to reduce the energy needs of public buildings will assist in securing energy

independence. Lower running costs will further represent a longer-term saving to the exchequer.

The State, through its various institutions, gathers an enormous amount of datasets on property in Ireland,

including its type and age, location, ownership, last transaction price and current use. Much of this data is

collected at point-of-sale and accumulates with each transaction. The movement towards geo-tagging data

has meant that it is now possible to link all of this disparate and historical data and record it centrally, linked

to the location of each individual property. The State, which itself is the largest owner and tenant of property

in Ireland, does not yet own a map of all buildings under its control.

The Sustainable Energy Authority of Ireland suggests that the running cost of Irelands public built estate is

in the region of 600 million per annum, and that a national programme of retrofitting public buildings, and

private buildings leased by the State could see that figure fall by one-third. The Society therefore welcomes

the fact that the Office of Public Works (OPW) has assumed executive authority for the procurement of office

accommodation and the allocation of office space. The potential savings which can be made can be seen in

the fact that the first phase of rationalisation generated a 20% fall in leasehold expenditure, annual rental

savings of 27.6 million and a property footprint reduced by almost one million square feet. According to

recent reports, the total property portfolio held and managed by OPW comprises of 2,255 holdings with 635

buildings housing the Civil Service, 840 Garda properties and 780 heritage properties.

Leasehold expenditure has come down from a high of 130m in 2009 to 107m in 2012. The total floor area

of its office portfolio has fallen from a high of 950,714sqm in 2008 to 879,742sqm at the end of 2012.


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A national energy efficiency framework should include learning lessons from current exemplar projects in

the public sector, to seek new ways to stimulate economic activity in the field of energy efficiency and tocreate indigenous businesses in the retrofits sector. The Sustainable Energy Authority of Ireland suggests that

one half of retrofit costs in Ireland are labour. During a period of high unemployment, this represents an

opportunity to reduce unemployment in the construction sector.

The Society urges Government to continue to work to reduce the size of the States property footprint and to

continue to dispose of surplus property on a programmed basis. In 2012, the shortage of high-quality

commercial property has become acute in some areas; in order to promote the efficient use of buildings, the

Society recommends that Government works with the private sector in promoting the transfer of surplus

office and other properties into the private sector where demand from occupants is strongest.

RECOMMENDATION: Investment in, and rationalisation of, public buildings to reduce the running

costs and improve energy efficiency of the public estate.

Promoting Private Investment in Construction

and Regeneration

It is recognised by all stakeholders in the construction sector that increases in direct exchequer investment

in capital projects are unlikely until the economy improves. This requires greater short-term efforts to offset

cuts in direct funding with alternative funding sources, including from private pension funds and through

measures to release private savings into new models of Public-Private Partnerships.

Despite huge injections of public finance into Irelands banks over recent years, evidence from practitioners

suggests that normal, sustainable lending to the private sector has not yet recommenced. This failure by the

banks to fund even the most sustainable, modest and necessary new developments are undermining the

completion of many, much-needed new buildings and urban regeneration projects.

The banking sector has an important role to play in national economic recovery, in terms of providing capital

to businesses which want to invest for their future. Without such capital, potential growth is likely to be

undermined. The Society recommends that Government maintains pressure on Irish pillar banks to support

the private sector in improving the quality of new and existing buildings through appropriate funding measures.

RECOMMENDATION: Delivery of alternative funding for public works, coupled with measures to

support improved bank financing of private construction projects.




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In the United Kingdom, the Cut the VAT coalition comprising of 21 organisations, has been highlighting the

opportunity to reduce the rate of VAT on repair, maintenance and improvement work on residential property

in order to promote energy repairs and to undermine the growth of the shadow economy. The coalition

commissioned Experian to conduct a rigorous analysis of the size of the shadow economy in the sector, and

the economic effects of a reduction in the VAT rate.

The Experian report highlighted the fact that in the UK, the hidden economy is potentially worth 22.8% of

the home repair, maintenance and improvement sector. This represents a multi-billion pound loss to the UK

Exchequer in taxes. The report noted that while a reduction of VAT to 5% for this work would result in

declines in exchequer income from the legitimate economy, it would have a positive impact in bringing non-

compliant work into the tax-compliant sector.

One area of construction activity supporting the private housing repair, maintenance and improvement sector

in Ireland has been investment in energy efficiency. The Government has committed to achieving a 20%

reduction in energy demand across the whole of the economy through energy efficiency measures by 2020.

It is expected that the residential sector will contribute 35% of the targeted savings.

In recent years funds have been allocated for improving the energy efficiency of the residential building stock.

This funding has taken the form of direct grant payments to households. It is estimated by SEAI that to date

over 300 million in public and private funding has been spent on 270,000 energy efficient measures in

110,000 homes.

The existing grant supports in this area are captured under the Better Energy: the National Upgrade

Programme - which was launched in May 2011 and replaces previous energy efficiency and renewable energy

programmes: the Home Energy Savings Scheme (HES), the Warmer Homes Scheme (WHS) and the

Greener Homes Scheme (GHS). The Better Energy programme is designed to support the energy efficiency

upgrades of one million homes, businesses and public buildings.

The total capital allocation in 2012 for grant supports was 76.1 million for energy efficiency measures in

private residential housing, low income homes and the public and commercial sectors. Although the

Government is committed to providing a significant level of support in 2012 and 2013, it has also noted that

there will be a transition to a non-Exchequer based funding model no later than the start of 2014.

According to the Societys own Annual Construction Report 2012, the total housing RM&I market was worth

an estimated 2.83 billion in 2010. The RM&I figure covers investment by households in major housing

improvements and minor housing repair works as well as public sector investment in refurbishment of the

public housing stock. In terms of expenditure by the private sector, the Society estimates that the overall


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volume of housing RM&I expenditure declined by 10% in 2011, as household incomes continued to be

affected by adverse developments in the economy.

Notwithstanding the boost from energy efficiency measures and a focus on renovation and improvement

works by the local authority sector, overall investment in housing RM&I declined by almost 8.5% in volume

terms in 2012 as private household incomes and local authority funding continue to be affected by austerity

and fiscal consolidation measures. The Society recommends that the reduction in VAT on this form of

construction activity could have a significant positive effect in stimulating new activity and promoting private

investment in the built environment.

Aside from the obvious benefits of such an increase in employment levels, a reduction in VAT in this sector

of the economy would mean that the Government would benefit from an increase in income tax receipts,

additional spending in the economy and a reduction in the social welfare bill.

RECOMMENDATION:Reduction of VAT to 5% on labour and professional services for home repairs,

maintenance, lettings and management of residential property to reduce exposure to the Hidden

Economy and drive standards of statutory and regulatory compliance in the construction sector.




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Contents

Market Supply of Residential Property

Mortgage Availability

Graph 6: Quarterly Mortgage Lending 2006 2013

Recognition of Tenure Mix Change in Ireland

Graph 7: Annual Sale Price Change 2007 2013

Graph 8: Annual Rental Price Change 2007 2013 Help to Buy



Part 2

Residential Property


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The Irish Residential Property Market in 2013

According to the Central Statistics Office, national residential property prices peaked in the third quarter of

2007, following a peak of apartment prices in the first quarter of the year. In Dublin, prices peaked in Q1

2007, a full quarter before the rest of the country saw peak prices. House prices have now been falling forsix years, driven in part by a lack of consumer confidence, uncertainty about the future direction of house-

prices and by a lack of mortgage availability.

Reports over 2013 have suggested that the market in Dublin has begun to stabilise as interest and confidence

in property has grown in some areas. In the rest of Ireland, the property market is split as rural areas perform

less well than urban areas. During the period of house-price reduction, the private rental market has

performed well, so that in 2013, there are areas of undersupply of appropriate property types to serve this

changing tenured market.

The introduction of the Local Property Tax and the ending of mortgage interest relief in 2012 had only amarginal impact on the property market. The Society continues to believe that a transparent, fair and

sustainable property taxation regime can have a positive impact on public finances and local Government

autonomy. The Society looks forward to working with Government in advance of 1 January 2015 when local

authorities are given power to vary the property tax rate. This is an opportune moment to assess how the

energy efficiency agenda could potentially be built into the property taxation regime, and to make meaningful

changes to stamp duty on transaction of residential property, the levying of commercial property rates and

development contribution schemes.

Part Two: Residential Property



2


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Market Supply of Residential Property

Ireland will soon experience a shortage of urban properties, and efforts should be made now to reform the

planning and development regulations to facilitate urban renewal and brown field developments, to maximise

urban densities and supply well-located property types which are most needed.

The Society believes that normalisation of market activity can best be promoted through a more timely

receivership process, speedier decision-making amongst NAMA and financial institutions and the clearance

of insolvent properties from the market. Furthermore, over the next year, reform of the personal insolvency

regime and receivership process has the potential to increase the supply of properties coming on to the

market and have a wider societal impact on the property market.

The Society notes that a policy of greater urban density can only be achieved through a reformed planning

system so that necessary residential and commercial property construction on brown field development

can take place. In many areas, while the preference of planning authorities is for promoting the development

of high-density apartments, there is a greater need to supply high-density housing to meet current shortages.

The Society recommends that greater attention is given by planning authorities to supplying high-quality

family housing to meet market demand while achieving greater densities.

The Society recommends that the pilot scheme announced in Budget 2013 to promote refurbishment

investment in some Georgian areas be expanded nationwide, coupled with processes to promote infill

developments.

RECOMMENDATION: Address supply problems through the promotion of increased urban

densities and development of brown field sites; nationwide expansion of pilot schemes to refurbish

Georgian areas.

Mortgage Availability

Despite the large injections of public money into Irish banks, there is concern that anecdotally, even the

safest and most modest applicants for mortgages are routinely being refused credit. In 2012, mortgage

lending represented approximately 2.96 billion. It has been estimated that as the market recovers, a

residential mortgage market size of 4-4.5 billion is achievable in Ireland; Furthermore, it is reasonable to

assume that Ireland may experience an annual mortgage market of 8-10billion within 5-10 years. This will

require strict lending criteria and Government oversight.

The Society recognises that by the end of the first quarter of 2013, there were some 142,000 mortgages in

some form of arrears, and that the number of mortgages in longer-term arrears continues to grow. The




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Society welcomes initiatives taken by Government to assist those in arrears and repeats its offer to work with

Government and all stakeholders to assist those who are in financial difficulty.

In the buy-to-let sector, it is notable that at end-March 2013, there were 149,395 residential mortgage

accounts for buy-to-let properties held in the Republic of Ireland, to a value of 30.9 billion. Of this total

stock of accounts, 29,369, or 19.7%, were in arrears of more than 90 days. This compares with 28,366

(18.9% of total) that were in arrears of more than 90 days at end-December 2012. The outstanding balance

on BTL mortgage accounts in arrears of more than 90 days was 8.6 billion at end-March, equivalent to

27.7% of the total outstanding balance on all BTL mortgage accounts. This represents a significant challenge

to the smooth-running of the Irish property sector.

Graph 6: Value of Mortgage Lending 2006 - 2013

The Society recommends that the mortgage application process should be standardised, so that potential

mortgagors can make a number of applications to different lending institutions simultaneously. The Society

also recommends that Government creates an independent mortgage review body so that unsuccessful

borrowers can have their refusal independently assessed.

RECOMMENDATION: Standardised mortgage application forms to ease mortgage application

process with unsuccessful applications subject to an independent mortgage review body.

0.000

2.000

4.000

6.000

8.000

10.000

12.000

2006

2007

2008

2009

2010

2011

2012

Source: IBF/PWC ( bn)


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Recognition of Tenure Mix Change in Ireland

According to the latest daft.ie report sale prices grew in Dublin by 0.6% during 2012. This represents the

first increase in prices in any region of Ireland since Quarter 4 of 2007, in all other regions, prices continue

to fall, although as the graph below shows, there is significant regional variation. Looking from 2007, as the

graph below shows, the Dublin market saw the greatest declines in sale prices from 2007 and has shown

the strongest recovery since 2011. Evidence from property practitioners in Dublin confirm the heightened

interest in property in the capital, and the looming pinch-point where demand outstrips supply of some

property types in Dublin. As the information from daft.ie usefully shows, if cities are excluded from the sale

price data, rural homes declined in price by -10.3% during 2012, confirming the urban-rural and Dublin-

Ireland split in the residential property market. Government, when deciding spatial and property related

policy, must recognise this regional variation in the property market, and avoid blanket policies which do not

respond to the specific regional and sectoral needs of the residential market.

Graph 7: Annual Sale Price Change 2007 2013

In 2012, the Society of Chartered Surveyors Ireland undertook a major research project to examine attitudes

of the public towards renting or buying residential property. The report found that amongst younger, urban

people, renting was seen as a positive option, especially during periods of house-price uncertainty. An

examination of the annual change in rents since 2007 shows that while rents fell at the same pace as sale



-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

2007q1

2007q2

2007q3

2007q4

2008q1

2008q2

2008q3

2008q4

2009q1

2009q2

2009q3

2009q4

2010q1

2010q2

2010q3

2010q4

2011q1

2011q2

2011q3

2011q4

2012q1

2012q2

2012q3

2012q4

2013q1

National Dublin Other cities Leinster

Munster Connacht-Ulster Ex-Dublin Ex-cities

Source: daft.ie (% annual change)


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prices between 2007 and 2009, they have seen a stronger recovery than sale prices. Nationally, rents

increased by 2.2% over 2012, driven by strongest growth In Dublin and Leinster. Unlike the sales market,

which is notable for its wide regional variation, the rental market is performing in a more uniform way, with

fewer differences in rents between rural and urban properties.

The Society of Chartered Surveyors Ireland recommends that recognition is given by Government to the

strong rental sector in Ireland. It recommends that the Private Residential Tenancies Board is properly

resourced to identify and eliminate unregistered landlords, and reform of taxation on investment properties

should be examined to support legitimate landlords who may find themselves in financial difficulty. To

support the supply of quality rental accommodation to meet the increased demand, the Society recommends

the creation of an investment scheme to assist in the syndication of landlords to purchase multiple properties

on a professional business basis. The measure to reduce the VAT rate on residential retrofit work would be

of financial assistance to landlords as well as ensuring higher standards of rental accommodation in Ireland.

Graph 8: Annual Rental Price Change 2007 2013



-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

2007q1

2007q2

2007q3

2007q4

2008q1

2008q2

2008q3

2008q4

2009q1

2009q2

2009q3

2009q4

2010q1

2010q2

2010q3

2010q4

2011q1

2011q2

2011q3

2011q4

2012q1

2012q2

2012q3

2012q4

2013q1

National Dublin Other cities Leinster

Munster Connacht-Ulster Ex-Dublin Ex-cities


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Help To Buy

The Society has noted with interest the Help to Buy initiative which has recently been launched by the

British Government to facilitate potential home owners to raise the necessary deposit. The intentions of this

scheme are for Government to act as a guarantor of a percentage of a homeowners debt and to be the

provider of interest-free loans to potential home-owners. The equity loan aspect of the initiative will apply

to first-time and existing homeowners who wish to buy a new-build property. Once borrowers can raise a

deposit of 5% of the homes value, they can borrow an additional 20% interest-free from the State, to a

maximum of 120,000. This must be repaid when the property is sold. After five years, interest of 1.75% will

be applied.

The second aspect of the initiative is the governments guarantee. Again, if borrowers are able to raise

between 5% and 20% deposit, the Government will provide the mortgage lending institution with a guarantee

of up to 15% of the mortgage. This scheme is not limited to the purchase of newly built properties. In both

cases, the scheme is limited to those wishing to buy their principal private residence, and is not available

on a commercial basis.

The Society recommends that Government explore similar options for assisting those who are struggling to

raise a deposit to buy their home, or to explore the possibility of providing a form of limited loan guarantee,

to assist potential home-owners. To avoid repeating errors of the past, the Society recommends that these

initiatives should be limited to first-time buyers of principal private residences, and their impact on the

residential property market reviewed on an on-going basis.




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Contents







Part 3

Commercial Property


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The Irish Commercial Property Market in 2013

As commercial property investment is intrinsically tied to consumer confidence, investor sentiment and

Irelands international reputation overseas, the Society continues to recommend that measures in Budget

2014 should have a focus on restoring confidence in Irelands economic future, both domestically and

amongst potential international investors.

Reforms to stamp duty on the the transactions of commercial property made in previous Budgets have had apositive impact on lowering entry costs into the Irish market. Lower property values, coupled with these reduced

costs, have resulted in a growth in international and domestic investment in the market. Initial data for 2013

suggests that transactions in the investment market may reach 610m in 2013, up from 179m in 2011.

While interest from investors is showing signs of increasing, and yields are improving, there is a dearth of new

commercial property coming onto the market. Leading indicators from the construction sector suggest very

few new commercial property projects are being commenced, and there is already evidence of a shortage of

some property types, especially third-generation offices in key growth areas, including the centre of Dublin.


In 2013, the IPD/SCSI index recorded a positive return on investment in Irish commercial property. Lower

entry costs and reduced transaction taxes have stimulated a greater international appetite for investment in

Irish commercial property. It should be noted, however, that difficulties for both international and domestic

investors to secure project financing has significantly slowed the process of successfully completing

transactions. The Society recommends that Government continues to work with lending institutions, private

finance agencies and real estate agents to identify and resolve financing and property transaction

bottlenecks, so that Ireland can benefit from increased private investment in our commercial property stock.

Part Three: Commercial Property



3


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The Society recommends that the legislation giving effect to REITs is commenced, to further attractinternational investment into Ireland. The REITs model should be supplemented with a smaller-scale

investment trust model to give a financial benefit and reduced risk to smaller, domestic investors in

commercial property portfolios, including pension and insurance funds which are risk averse and which

represent a significant stock of potential capital which could be released into the economy.

RECOMMENDATION: Promotion of increased international investment in Irish commercial

property through the promotion of Real Estate Investment Trusts coupled with measures to support

small-scale domestic investment by pension and insurance funds in residential and commercial

property on a syndicated basis.


Recommended measures to improve the environmental quality of the residential sector through incentives

to undertake meaningful retrofitting projects should be complemented with the reduction of VAT on energy

retrofitting of commercial property. This will incentivise the improvement of Irelands commercial property

stock, as well as reducing the size of the Shadow Economy in Ireland. While rents and yields have stabilised,

support is needed to increase the commercial viability of improving the quality of existing buildings.

It has been well-recognised that IDA has been extremely successful at attracting investment into Ireland.

Ireland is now the international hub for many of the worlds most important and demanding companies. As

a result, the commercial property market is one of the few sectors which is experiencing real transactional

and construction activity. Foreign Direct Investment is at the heart of that economic activity and these

business wins have generated good demand for office accommodation for business service enterprises

establishing a base in Ireland. Demand, particularly seen in Dublin, is for small units between 5,000 and

10,000 sq. ft. In addition, there are a small number of higher profile clients who require significantly larger,

bespoke, properties.

On the supply side, the continued difficulty in securing finance means that vacancy rates are falling and there

is a shortage of prime office space in central Dublin. As a result, there is an opportunity for new construction

activity in this area. In the short-term, it is likely that the focus of activity will be on short-term leases and

the refurbishment of existing office space.

Options open to owners of commercial property have been explored by Davis Langdon in recent months.

The table below shows refurbishment options and the potential extension of the economic life of property.




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In recognition of the shortage of quality office accommodation in many urban centres, the Society

recommends that NAMA should commence a process of development of commercial buildings under its

control, either alone or as Joint Ventures, to prevent any further market shortage.

RECOMMENDATION: Reduction of VAT on the retrofitting of private commercial buildings to

improve the energy efficiency of the Irish built environment; and a managed process of rationalising

the public estate to lower running costs.


Government proposals to develop the agricultural sector of the economy are to be welcomed, and the

Society believes that such proposals can be enhanced through minor revisions of the agricultural properties

taxation regime.

As the taxation regime for agricultural land and farm buildings has developed, a number of anomalies have

emerged. The Society is concerned that not only do these taxation issues have a significant impact on

individual families and small businesses, but collectively they undermine the efficiency of the wider tax

regime. One significant anomaly is the levying of Capital Gains Tax on CPO compensation, which limits the

investment opportunities for farmers who have received compensation for land which was removed, but

then effectively prevents them from using the full compensation given. The Society recommends that

government explores opportunities to re-instate Rollover Relief to avoid the current difficulties in acquiring

land following the CPO process.



RepairMinor Refurbishment

Re-ModelMedium Refurbishment

RenewMajor Refurbishment

Scope Focused on common areasand involves essentialrepairs only. Often doneduring occupation

Full upgrade of Mechanicaland Electrical and finishes.No major structural changes.If occupied, some decantingand phasing

Significant Structuralalterations/ facades/rooffinishes. Renewal of fittings,finishes and Mechanicaland Electrical.

Extension ofEconomic Life

Increase of approx 5 years Increase of approx.15 years

Increase of approx15 20 years

Benchmark cost persq. ft of Gross Internal

Area

30 75 per sq ft 75 - 125 per sq. ft. 125 - 175 per sq. ft.

Source: Davis Langdon Ireland Annual Review 2013


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Under the Succession Act (1965) land is automatically returned to parents on the death of a farmer without

any spouse or descendents. However, anomalies arise in regard to the Early Farm Retirement Scheme

which was abolished in 2009 for new entrants. It appears no allowance is made in the event of the death of

a new owner, and in this case, parents of the farmer may be subject to capital gains tax based on the

difference between the value of the land on the sons death, and the current market value. The Society

recommends that this rule should be abolished or clarified as it should not be left to the revenue

commissioners to decide on the application of capital gains tax.

A second anomaly exists in regards the transfer of all agricultural property. If property is not transferred as

part of the farm, it may be liable to capital acquisition tax and does not qualify for agricultural relief. In

Ireland, many farming parents retain their residence as a source of security when transferring the farm over

to the next generation. This tax law needs to be reformed, as it causes financial hardship in having to pay

additional capital acquisitions tax. This anomaly should be removed to allow protection of parents when

they retire. Equally if a farmers son buys a site to build his own dwelling with the intention of inheriting the

family farm in due course his main residence will not qualify for agricultural relief. However, the Societys

understanding is if the same site given by way of gift on the farm then that residence will qualify.

If a farm makes less than 750,000, the farmer is exempt from capital gains tax. However, if the farm makes

in excess of 750,000, the farmer would be subject to marginal relief, provided he owned and farmed the

lands for a minimum of 10 years. If, however, the farm had been rented out prior to the selling, then the

farmer would not have qualified for tax relief and would be subject to CGT as normal. Many

widows/widowers or those suffering from ill health have no option but to let their land. But when they choose

to sell up, they are, unknowingly, hit with a tax bill. This anomaly should be reformed as part of Budget 2014

and in an attempt to streamline the agricultural land and property taxation regime.

RECOMMENDATION: Reform of the taxation regime for inter-generational transfer of agricultural

property, including CGT and re-instatement of roll-over relief.




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Dating back to 1895, the Society of Chartered Surveyors Ireland is the

independent professional body for Chartered Surveyors working and

practicing in Ireland.

Working in partnership with RICS, the pre-eminent Chartered

professional body for the construction, land and propertysectors

around the world, the Society and RICS act in the public interest: setting

and maintaining the highest standards of competence and integrity

among the profession; and providing impartial, authoritative advice

on key issues for business, society and governments worldwide.

Advancing standards in construction, land and property, the Chartered

Surveyor professional qualification is the worlds leading qualification

when it comes to professional standards. In a world where more and

more people, governments, banks and commercial organisations

demand greater certainty of professional standards and ethics,

attaining the Chartered Surveyor qualification is the recognised

mark of property professionalism.

Members of the profession are typically employed in the construction,

land and property markets through private practice, in central and local

government, in state agencies, in academic institutions, in business

organisations and in non-governmental organisations.

Members services are diverse and can include offering strategic advice

on the economics, valuation, law, technology, finance and management

in all aspects of the construction, land and property industry.

All aspects of the profession, from education through to qualification

and the continuing maintenance of the highest professional standards

are regulated and overseen through the partnership of the Society ofChartered Surveyors Ireland and RICS, in the public interest.

This valuable partnership with RICS enables access to a worldwide

network of research, experience and advice.

Society of Chartered

Surveyors Ireland

38 Merrion Square,

Dublin 2, Ireland

Tel: + 353 (0)1 644 5500

Email: [email protected]

www.scsi.ie

chartered surveyors prebudgetsubmission_2014

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