PwC Urban Land Institute Emerging Trends in Real Estate Survey 2015
Hugh Campbell analyses the results of a recent real estate survey and the trends that are emerging in Europe’s real estate investment sector.
Recent results from the PwC/Urban Land Institute’s Emerging Trends in Real Estate 2015 Survey have revealed that Dublin is again at the top of favoured locations in Europe for real estate investment. This honour is awarded to Dublin due largely to the availability of product and the expectation of continued significant investment returns relative to elsewhere in Europe. There is also a view that rental growth will be strong based on limited supply, coupled with broad economic and employment growth.
Hugh Campbell
Hugh Campbell

Historically there was extremely limited foreign ownership of Irish real estate. However, all that changed with the international economic collapse. In the last few years in particular, there has been significant foreign investment in Irish real estate either through the direct purchase of property or by the purchase of loan books. According to recent reports, there was approximately €4.5 billion invested in the Irish investment property market in 2014 in addition to over €21 billion of loan sales. This sale of investment property in 2014 represented an increase of approximately 25% on the previous peak in 2006. Unlike in 2006 though, the 2014 investors were in the main foreign, typically professional and institutional real estate investors.

While the main driver for the decision to invest in Irish real estate is the expectation of significant economic return, there are several other factors which contribute to the relative attractiveness of Irish real estate. The taxation treatment of Irish real estate is one such factor particularly where it is held by non Irish professional and institutional owners. Typically, most jurisdictions will attempt to tax rental profits and capital gains on sale and Ireland has such taxing rules. However, various investment structures can, in certain circumstances, be used to manage the Irish tax liabilities that would otherwise arise on rental profits and on any gains arising on the ultimate disposal of the property.

Other structures have also evolved to help stimulate investment in the Irish real estate market. Legislation was introduced in 2013 for Real Estate Investment Trusts (REIT), which are investment vehicles that are quoted on a Stock Exchange and are open to participation by the public. There are tax attractions with being established as a REIT. Qualifying REITs are able to operate on a tax free basis provided certain conditions are met. While withholding tax (at the standard rate, currently 20%) would apply on dividend payments by the REIT, it may in the case of foreign investors be refunded under the terms of the relevant Tax Treaty. Interestingly, an exemption from Irish CGT applies to gains arising to foreign investors from disposing of their shares in an Irish REIT.

There are still a significant number of properties that remain to be transacted, with NAMA indicating that there will be some very significant assets brought to the market in 2015. In addition, much of the loan books acquired in 2014 have yet to be worked through and the expectation it that further loan portfolios will come to the market in 2015.

Based on the results of the PwC/Urban Land Institute’s Emerging Trends in Estate 2015 Survey, it is clear that Dublin will continue to attract significant attention from abroad. Hopefully the rest of the country will also benefit from this.
Hugh Campbell is a tax director in the PwC Real Estate Practice.
This article appeared in the March 2015 edition.