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Stamp duty cut ‘may boost house market’

Stamp duty cut ‘may boost house market’

Thursday, December 09, 2010

THE change in stamp duty on houses could help boost housing demand, analysts at Davy research suggest in a note yesterday.

It remains to be seen what impact the changes in residential stamp duty will have, but they do offer a “glimmer of hope to the current depressed market”, Davy’s Flor O’Donoghue said.

For residential property up to now, stamp duty on second-hand housing transactions was exempt up to €125,000 and charged at 7% thereafter.

With immediate effect, stamp duty will be at a flat 1% for housing transactions up to €1m and 2% over €2m.

“Reform of stamp duty may not initially lead to a stampede to estate agents’ doors, but it should help a moribund housing market entering 2011,” he said.

In terms of the impact, if we take the average house price in Ireland at €199,000, the saving in stamp duty for a second-time buyer will be €3,171, given the duty will fall from €5,158 to €1,987.

Taking the average house price of almost €240,000 in Dublin, the difference stretches to €5,589, he said.

The higher the price, the bigger the savings.

If this stamp duty reform does have an impact, however marginal, Grafton Group, the country’s leading builders merchants and DIY (Woodies) operator, should come well out of the pick-up, he said.

Since the slump it has suffered a 53% fall in Irish revenues from peak, with serious consequences for earnings.

Having lost around €12m in Ireland in 2010, Grafton may well return to profit in its domestic operations in the second half of the current year as the rate of decline in revenues has moderated significantly, Mr O’Donoghue said.

If the changes in stamp duty have any impact at all the broker says that would “accelerate Grafton’s profit recovery in Ireland”.

“We are currently forecasting that Grafton will be around break-even in Ireland in 2011,” he said.

Given profits peaked in Ireland at €130.4m in 2006, expectation levels are clearly extremely modest, but even a modest improvement in volumes is likely to result in a noticeable improvement in the overall outturn for the year in Ireland, he said.

 This story appeared in the printed version of the Irish Examiner Thursday, December 09, 2010

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