International finance has inflated housing bubble – Matt Carthy MEP
Sinn Féin MEP Matt Carthy has highlighted the role of international finance in inflating the Irish property bubble. Carthy was speaking following a hearing of the European Parliament’s TAX3 special committee on financial crimes, tax evasion and tax avoidance, held this week to examine the impact of money laundering in the real estate sector in EU cities.
Carthy said: “We have an unprecedented housing crisis in the Irish state, driven in large part by a new property bubble in both housing and commercial real estate. The over-valued house prices have contributed to the housing and homelessness crisis, and priced an entire generation out of buying a house. The bubble also sucks the life out of the local economy as people have less disposable income to spend.
“In several interactions with me over the past two years, ECB President Mario Draghi has identified the search for yield by international investors as the main cause of this overheating in the Irish market. Large investors, mainly US hedge funds, are now responsible for more than one-fifth of new purchases in Dublin.
“The latest figures show that an astonishing €17.9 billion in overseas money was invested into Irish property in 2017, with 80 per cent of it targeting the residential sector and the remainder flowing into commercial property. The €14.4 billion that entered the residential property market represents a 24 per cent increase on the previous year’s figures.
“On the one hand, you have international investors hunting for returns through safe investments that have a high yield. While government debt traditionally attracted this type of investment, the Eurozone financial crisis has resulted in international investors turning towards real estate in European cities as their investment of choice.
“On the other hand, the Irish government has deliberately fostered a climate aimed at encouraging international investment in property, particularly through its creation of so-called ‘tax-neutral’ investment vehicles. The umbrella Irish Collective Asset Management Vehicle is the most popular corporate structure as it allows for sub-funds to be treated as separate entities and is not required to spread risk the way other investment companies are.
“Although the government introduced changes in the Finance Act 2016 in response to public pressure over Section 110 companies, loopholes remain that allow many Irish Real Estate Funds to avoid paying any tax at all, or in some cases, only incurring tax upon their exit from the state.
“Countries like New Zealand have started to take action to control house prices – last year banning foreign ownership of domestic property in an attempt to dampen speculative investment in housing. Our government is doing the opposite, inviting the speculators in despite the harm they are causing to the people and families who live here.
“We need to take a serious look at the impact of international finance in contributing to our housing and homelessness crisis, and implement controls to cool the heat in the market in an orderly way immediately.” ENDS