Cowen says duty cuts will stabilise housing market

Stamp duty cuts in yesterday's Budget will offer "a floor" to the property market and not spur a new round of house price increases, Minister for Finance Brian Cowen predicted last night.

"There will be no losers and no anomalies created by this banding system. It will be extremely simple and considerably less expensive," Mr Cowen said.

The changes would not be "a panacea" for all of the troubles in the housing market, he said, which has been affected by higher interest rates and tighter credit.

Under the changes, the first €125,000 price of a house will be exempt from stamp duty, while a 7 per cent charge will be levied on the next €875,000, and 9 per cent on the portion above €1 million.

First-time buyers remain exempt from the tax.

The stamp duty paid on the average-priced house, now costing €370,000, will fall by €5,250 from €21,000 to €15,750 under Mr Cowen's move, which will apply to sales made after today. The decision to change stamp duty rules was the most closely guarded element of Budget 2008.

Clearly targeted at middle-class buyers, the biggest savings will be made on houses selling for more than €650,000. Sales in this sector have been stagnant for the past year, with buyers waiting for prices and stamp duty to fall.

The Government and Fianna Fáil TDs had been heavily lobbied on the issue over recent weeks by the Construction Industry Federation and by leading building companies.

Rejecting charges that he had rowed back on previous opposition to changing the tax, Mr Cowen said he wanted to "bring certainty" to the market. Population changes mean that Ireland needs 60,000 more houses a year.

"Conditions are now such that there is a better balance between seller and buyer in the housing market. Price corrections are taking place," Mr Cowen said.

"Activity is slowing somewhat and there is some uncertainty as to where prices will settle."

Following the general election, the Government abolished stamp duty for all first-time buyers, regardless of the price of the property.

The changes made yesterday could not be compared to the reforms proposed by Fine Gael before the general election, he said, because that would have cost €660 million, while his reforms were an "affordable" €190 million, he said.

Fine Gael deputy leader Richard Bruton, who proposed more wide-ranging changes before the election, said the reforms came "six months too late".

Former minister of state Tom Parlon, who is now the Construction Industry Federation's director general, said the reforms would "help to reactivate transactions" and help to keep investment in Ireland.

© 2007 The Irish Times

This article appears in the print edition of the Irish Times