Minister for Finance Paschal Donohoe has moved to extend the VAT cut on apartment sales to forward-funding deals, which are increasingly used by approved housing bodies (AHBs) and others to deliver apartments.
To boost the viability of apartment construction, Mr Donohoe lowered the VAT rate on new-build apartments from 13 to 9 per cent in October’s budget.
The lower rate, however, did not apply to forward-funding arrangements, where investors or housing bodies acquire sites before construction begins and make stage payments during development, which, for VAT purposes, are classified as site and construction services.
To correct the anomaly, Mr Donohoe introduced changes to the Finance Bill, presently at the committee stage of the legislation schedule, to include site and construction services in the VAT cut.
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He previously indicated he had asked his officials to extend the scope of the cut “in order to maximise the impact of this measure on the supply of new apartments”.
John Cuddigan head of tax at law firm Ronan Daly Jermyn (RDJ), said the changes “should now allow for extension of the reduced 9 per cent rate to delivery of apartments under forward-funding arrangements and also on sites owned by local authorities or public bodies under contracting arrangements from November 26th, 2025″.
“The changes are sensible and recognise the usual varied methodology of delivery of apartments to the private and public sectors,” he said.
“The changes also extend the special corporation tax reduction for construction costs of apartments to such forward-funding arrangements and contracting arrangements, which is again welcome.”
Alternative financing models, particularly for high-cost apartments, have gained popularity in recent years.
To reverse a slowdown in apartment construction, the Government has streamlined design standards, revamped the State’s system of rent controls and more recently reduced VAT on new-build apartment sales.
The moves come in advance of the Government’s new housing plan, due to be published on Thursday, which will include a commitment to deliver 90,000 “starter homes” over the next five years and an additional €2.5 billion in funding for the Land Development Agency.
[ What do we know about the Government’s new housing plan? ]
Overall, the Government has pledged the delivery of more than 300,000 new homes by the end of 2030.
But new figures for housing commencements show they fell to their lowest level since the Covid-19 lockdowns in the third quarter of this year.
Data collated by Construction Information Services (CIS) indicate that housing starts fell by 49 per cent year on year between July and September this year. The decline came despite a rise in planning approvals.
The figures suggest last year’s temporary development levy waiver created significant activity in 2024, but was followed this year by a sharp adjustment that is now affecting housing delivery timelines.
“The substantial shift in housing starts following last year’s levy-driven activity highlights how policy interventions can create volatility in the construction pipeline,” Dave Thompson, vice-president for UK and Ireland at CIS, said.
“This presents considerable challenges for meeting Ireland’s housing delivery targets.”
CIS’s report highlighted a similar construction pattern in the non-residential sector with 587 projects worth €1.8 billion receiving planning permission, while the value of projects moving into construction fell 22 per cent year-on-year to €92 million across 394 sites.
