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Restrictions on bulk purchasing

Adam Duggan
08/07/2022

Locations

Ireland

In May 2021, the Government announced new measures to prevent bulk purchasing of houses and duplexes by investment firms. The aim was to ensure that bulk buying did not displace individual purchasers and social and affordable housing.  

Stamp Duty

The Stamp Duties Consolidation Act 1999 was amended with the introduction of section 31E. This provided for a new stamp duty rate of 10% on the purchase of 10 or more residential properties over a 12-month period. It excludes multiple purchases of apartments and units acquired by Local Authorities. Additionally, an "owner occupier guarantee" was introduced which enables Local Authorities to designate a specified number of houses and duplexes with a pre-determined range of at least 0-50% in a development or owner-occupiers. It operates similarly to part V of the Planning and Development Act 2000 which established a mechanism by which local authorities can obtain up to 10 per cent of land zoned for housing development at “existing use value” rather than at “development value'. While this amount has since been increased 20 per cent, the measures are addition to owner-occupier designation.

Planning

More recently, the Department of Housing, Local Government and Heritage issued Circular Letter: NRUP 03/2021 (the “Letter”) informing An Bord Ple├ínala and all Local Authorities that developers of five or more units must enter into an agreement with the Local Authority that will limit the sales of such units to individual buyers and/or occupation of social and affordable housing from 20 May 2021.

Under the guidelines, an applicant for planning permission must enter into a section 47 agreement (the “Agreement”) with the Local Authority that restricts all houses and duplex units in the development to first occupation by individual purchasers (excluding corporate entities) and/or occupation of social and affordable housing. The Agreement shall be in operation for the duration of the planning permission but can be terminated if the application cannot transact the property after a period of two years. Relevant planning authorities must have regard to various submissions evidencing the sale and marketing of such houses/units before a decision is reached to terminate the agreement between the developers and the planning authority.

The aim of this legislation is achieved through the Local Authorities applying a planning ’condition’ to planning permissions where deemed appropriate which developers must abide by. Apartment developments and ‘build-to-rent’ developments fall outside the scope of this amendment. As of late May 2022, An Bord Plean├íla had applied the planning condition to a total of 7,988 residential units across 23 strategic housing development planning permissions. A further 23 Local Authorities have also implemented the condition to 7,895 residential units. As such, approximately 15,883 residential units have been ring fenced from investment funds, which could otherwise have been acquired for rental purposes.

While the changes cannot be applied retrospectively, they are subject to enforcement. Should these conditions not be complied with by developers, the development itself is considered unauthorised and the owner of development is susceptible to enforcement actions on behalf of a planning authority. Under Section 151 of the Planning and Development Act 2000, it is an offence to carry out, or to have carried out, an unauthorised development.

Conclusion

These measures were introduced with the aim of preventing institutional investors from sweeping up family homes from individual purchasers. While the numbers presented by Local Authorities would indicate that the planning conditions are working, a more detailed statistical review of individual purchases arising directly from the measures in comparison with building growth should be considered to determine their impact. A further review of section 47 agreements between developers and Local Authorities should also be considered to ascertain the extent to which these agreements are being terminated and what impact the terminations have on the overall statistics. While the measures are certainly welcome in terms of preventing bulk buying by institutional investors, a further review of their impact will be required before determining the measures success.

Written by Adam Duggan and Simion Curmei. 

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Real Estate