DUBLIN: A pledge by Ireland's main opposition parties to ban upward-only rent reviews on commercial leases has spooked overseas buyers and risks further inflating banks' losses, property investors said on Wednesday, Feb 16.
Fine Gael and Labour, widely expected to form the next government after a Feb 25 poll, want to ban upward-only rent reviews to ease the burden on retailers, which have been struggling to pay hefty rents, many of them set during the heady days of the "Celtic Tiger" economy.
The outgoing government banned upward-only rent reviews on all leases signed since the end of February 2010 and Fine Gael and Labour's proposals to retrospectively ban all such reviews has sent shockwaves through Ireland's commercial property sector.
"We are seeing people back away from deals that were agreed," said one Dublin-based property investor who declined to be named.
"If you are an international real estate investor sitting in New York or London and suddenly a future Irish government has threatened to bring in retrospective legislation you are just going to pass (on new deals).
"Until they remove the uncertainty, the market is frozen."
Ireland's property market has been in freefall since 2008, plunging the country into crisis and forcing the government to seek an €85 billion (RM351.22 billion) EU/IMF bailout last year to help shore up its banking sector, most of which is now state-owned.
The government has taken over the commercial property portfolios of all local lenders and so far its National Asset Management Agency (NAMA) has spent around 30 billion euros acquiring loans with a nominal value of €71 billion.
The Society of Chartered Surveyors warned in an opinion paper that Fine Gael and Labour's proposals would cut the income flow from commercial property assets, raising the risk of default and requiring the taxpayer to fork out more money to cover the losses.
"Currently the taxpayer owns about €30 billion euros of Irish commercial investments; roughly €10 billion Allied Irish Banks, €10 billion NAMA and €10 billion Anglo Irish Bank," the paper said.
"To bring in this proposed legislation will knock values by say at least 20% thus costing the taxpayer, say, €6 billion."
If the parties push ahead with their proposals they would likely be challenged in the courts, putting the commercial property market into the deep freeze until a Supreme Court ruling, which could take months.
Retailers have applauded the proposals with the industry's trade body, Retail Excellence Ireland, on Wednesday calling on the 255,000 people who work in the sector to vote Fine Gael and Labour on Feb 25.
"Immediate and urgent intervention by a Fine Gael / Labour government to ban upward only rent review clauses... reduce local authority rates and retain the retail planning guidelines will allow retailers breathing space to survive and consolidate their businesses," the group's chief executive David Fitzsimons said in a statement. — Reuters
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