In my past articles we covered some interesting jurisdictions in the Mediterranean including The Côte d´Azur in France, The Algarve and Lisbon in Portugal, Greece and its islands, and Malta. Now we are heading North of Europe to the Republic of Ireland, a jurisdiction that suffered severely from the global recession of 2008, which affected the entire world economy.
Up to 2007 Ireland had a booming economy before the recession hit most of Europe. It was badly hit to the extent that the EU had to come to its rescue, injecting enough funds to keep its economy and banking system alive. But the Republic of Ireland was not alone in this rescue program of the EU´s badly hit jurisdictions. Similar economic measures and bailout programs had to be made in Portugal, Greece and unofficially in Spain and Italy.
It is interesting to know that Ireland has not only completely recovered from its Economic crisis, but it is well back on track, to the extent of having a healthy rate of economic growth at present as well as being one of the safest and most profitable property rental markets in Europe, followed well behind by Portugal and Spain, that do also offer good rental yields but lower than that of Eire. Greece and Italy on the other hand have still got a good way to achieve full economic recovery although they are working on it at present.
The EU had to come to its rescue, injecting enough funds to keep its economy alive.
In 2010 nobody gave much of a chance to the Emerald Island, as Ireland is known, to gain full economic recovery and to pay back all its debt to its EU creditors and to show very healthy rates of growth in its economy at present. This happened because of a variety of reasons but let us go into detail first on what has been described as ‘Leprechaun Economics’.
In 2008 the property market bubble in Ireland burst, leading to a severe crash. In addition to this and to make matters more complicated in Ireland, the US subprime mortgage added to the problem, making the situation in the housing market extremely difficult to control. House prices in Ireland had fallen about 53% between 2008 and 2013. This led to negative numbers of growth and in 2010 Ireland had the Euro Zone highest deficit – probably over 31% of GDP. In that very year, The EU together with the International Monetary Fund IMF organised a €67 billion bailout loan. In exchange, Ireland agreed to a strong austerity program. This together with substantial foreign investment from the US and the UK (Ireland´s largest trading partners) plus strong lending measures by the Irish banking system started a gradual and miraculous recovery.
The housing market in Ireland is expected to rise 8% this 2019, 7% in 2020 and 6% in 2021.
This did not happen overnight. It was a slow recovery and the banks had to take exceptional measures when it came to refinance or give out new loans. This included not giving over 80% of finance of the property value to first time buyers when prior to the recession 100% had been fairly common practice. In addition, investors loans to buy to let would not exceed 60 to 70% of the value. The fact of having a fairly strong demand and a certain shortage of supply – a little like the Gibraltar market – plus very low interest rates never exceeding 2 or 3% per year added to speed up recovery. The fact is that by 2011 the Irish budget deficit was 12.5% and just 8% in 2012 slightly less than the figure agreed with its creditors. 2013 saw a further reduction to 5.7% of its GDP. At the end of that year Ireland was finally able to exit the Eurozone bailout program. From then up until today the Irish Economy has gone from strength to strength. Money talks, and in 2016 the budget deficit had shrunk to 2% and in 2017 to just 0.2%. In 2018 the deficit was down to 0.1%.
At this point in time, way into 2019, the European Commission expects the Republic of Ireland to register a surplus in the next two years. Ireland has now got a stable economy with good rates of economic growth. The property market is certainly back on track. And how long for? According to the rating agency Standard & Poor’s, the housing market in Ireland is expected to rise 8% this 2019, 7% in 2020 and 6% in 2021.
The agency fees are paid by the seller as in Gibraltar.
Surely Dublin is where most investors concentrate their purchases. A 1-bedroom apartment in Dublin 1 costing about €200,000 will produce rentals of €1400 per month, yielding a gross minimum 9%, amongst the highest in any safe European jurisdiction. The percentage gets smaller if the property is larger as in most markets. So, the answer is to buy several units which splits up the risk and yield a higher percentage figure.
And what about purchase costs?
Quite fair is the answer. Stamp duty is 1% on properties not exceeding €1,000,000. Properties exceeding this cost will be charged 2% of the excess figure. Agency fees are 1% to 3% and are always included in the purchase price. Conveyancing fees are charged by lawyers or business consultants at 1% up to 1.5%. Registration fees cost 0.25% to 0.75%.
And what about income tax on rental income?
About 20%, which is withheld by the tenant, and you may file for a return on all your running expenses like community charges, rates, repair bills, e.g. plumbing and roofing repairs, and advertising expenses.
In case of selling my property investments what are my tax liabilities?
At the time of publication of this article the figure charged to nonresidents as far as capital gains tax is concerned amounts to 33%. Similar to other EU jurisdictions like Portugal or France. Higher than Spain and much higher than in Gibraltar where capital gains tax does not exist.
Corporate tax is 12.5% for trading companies and 25% for non-trading companies. If you have a family fund the former applies provided you have it well structured.
All these advantages, great air communications between Malaga and Dublin or Belfast (about 5 to 7 flights daily with costs of less than €100 return if booked in advance), plus the language factor and a very simple bureaucracy makes Ireland an extremely attractive jurisdiction to invest in the international property market.