Is it time for a reduction in the rate of stamp duty on Irish commercial property? It is certainly worth highlighting a few data points which would suggest that the answer is yes.

In 2022, the non-residential property stamp duty yield was €692 million. This compares to just €178 million in 2015. The amount of tax has risen dramatically as the Government has raised the stamp duty rate over a number of Budgets. Stamp duty on commercial property was 2% in 2016 and currently stands at 7.5%.

In 2019, the increase from 6% to 7.5% was justified by then Minister for Finance, Pascal Donohue, on the grounds that "[t]he commercial property market continues to perform strongly, and it is expected that this increase can be borne by the sector without any real or significant impact."

Times have changed however. The market is no longer performing at such a high level. This is illustrated by a recent report prepared by BNP Paribas Real Estate ("BNPPRE"). BNPPRE reported that "[t]he investment market came to a near-standstill in Q2 2023 with just €333.4 million of income-producing property assets changing hands." This translates to a 47% reduction compared to Q1 and a 73% drop compared to the same period in 2022. BNPPRE also reported that only 26 deals took place in Q2 of this year. The average deal size in Q2 was a conservative €12.8 million with just one transaction valued at €150 million for the first time since 2017. Other agents report similar declines.

Transaction levels are declining due to a multitude of factors ranging from rising interest rates to increased construction costs. The slowdown is not an issue that is unique to Ireland. The majority of European markets are experiencing declines according to a recent report prepared by Jones Lang LaSalle.  

The Government has, in the past, been very conscious of the impact of stamp duty on transaction volumes. The lowering of the rate to 2% in 2012 was a conscious effort to revive the commercial property sector. The introduction of the 7.5% rate in 2019 was based on the strong performance of the market. Based on this logic, it does appear that the current decline in transaction volumes justifies a reduction in rates.

Although stamp duty is payable by a buyer, in reality, it is a tax on transactions. The seller must factor the stamp duty cost into their price and buyers must suffer that reduction. Serious consideration should be given to lowering the rate of stamp duty for non-residential property. It would be particularly welcomed in the context of sellers looking to exit the market. It could also incentivise buyers to acquire assets for refurbishment and redevelopments.

Budget 2024 will be announced on Tuesday 10 October 2023. We will soon see what the deliberations might be!