IIP Statement on role of Institutional funds in Housing
Issued 07 May, 2021.
The controversy of recent days has served to again sharpen political and media focus on the role of institutional investors in the housing market. Given the importance of the topic and its impact on all our lives this is very understandable in the circumstances. However, its important that the current debate is informed by facts rather than the emotion of the moment. If we are to effectively tackle our housing challenge institutional investors are part of the solution not part of the problem.
Irish Institutional Property (IIP) members have to date invested over €14bn in the Irish market, providing much needed offices and workplaces, retail, hospitality, and most importantly housing. Our approach to the housing market is focused on providing much needed supply and we are long term investors. We do not believe it is acceptable to offer houses for sale to the general public, inviting people to start to plan their finances to buy a house and then to withdraw them at short notice. Where it is viable to do so, we would support the concept of a percentage of houses in a residential estate development being required to be available for sale to first time buyers and individual home purchasers generally.
Institutional investment is critical to Ireland's economic and social progress and this capital is not available from any other source. Ireland today needs to source 80% of all real estate capital from internationally backed institutional investors. Our dependency on such capital will be further heightened following the announced departure of both Ulster Bank and KBC from the market shortly. Likewise, we need to be equally mindful of the stresses and demands weighing on the State’s balance sheet post the pandemic.
Investors, whether they invest directly in property or via an “institutional structure” ultimately pay all taxes. The institutional structure, however, allows for smaller investors and pension investors to access more professionally managed and larger investments, than if they invested directly themselves. These tax measures were introduced some years ago to attract more local and international capital into “collective investment” structures, moving away from the highly leveraged risky models that led to the property bubble and subsequent crash. Prior to their introduction, pension funds and international investors were not attracted to invest here because they would have been subject to double taxation. The tax regimes and structures applicable here for institutional funds are similar to those existing in other developed economies and across Europe who like us compete for international capital to fund their real estate needs. Without them access to international capital would virtually dry up. This is something Ireland cannot afford.
Institutional investors are funded , in the main by pension funds who take a long-term view and are seeking moderate returns over that timeframe. Institutional investors began entering the market around 2010 and many have now been here for over a decade and plan to be here for decades to come. They are not short-term investors as has wrongly been portrayed by some commentators.
Institutional investors are net sellers of additional new homes to the Irish market both for sale and for rent and that would otherwise not be built. IIP members include the largest house builders in the State who have currently in planning or course of construction 12,000 homes, approaching over 50% of total private market output. The majority of this output is for sale to individual home owners.
It is important that the ongoing debate on housing is informed by facts rather than emotion and that public policy responses to address the housing issue are similarly informed. To do otherwise will set back our objective of effectively addressing our current housing challenge by decades.
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