EMBATTLED Housing Minister Darragh O’Brien was an early investor in ‘cuckoo’ funds, the Irish Mail on Sunday can reveal.
Mr O’Brien bore the brunt of criticism this week over the Government’s housing policies as the issue escalated into a full-blown political crisis for the Government.
The political turmoil was sparked after Round Hill Capital – a global Real Estate Investment Trust (REIT) – acquired hundreds of homes in two new housing developments that would otherwise have been available to first-time buyers.
Now, with the Government scrambling to piece together legislation to prevent further bulk estate-purchases by investment funds, Mr O’Brien’s past involvement with REITs is coming under scrutiny.
The Minister’s Oireachtas declaration of interests shows that in 2008 he invested savings in a global REIT fund run by Standard Life Assurance.
Until his election in 2007, Mr O’Brien worked in financial services, specifically in the pensions sector with Friends First Assurance.
But this weekend, Mr O’Brien declined to answer the Irish Mail on Sunday’s questions about his knowledge of REITs during his period in the financial sector and whether or not he recommended them to any clients.
He also did not answer questions about the reasons he decided to invest in REIT funds and when he became aware of the unfortunate consequences for local residential property markets that can ensue from investing in these funds.
Instead, a spokesman for Mr O’Brien said he ‘has been very clear that he is opposed to the inappropriate purchases of housing estates by international investors’.
The spokesman added: ‘He believes this does need to be legislated for and, as he said in an interview on April 19, he is considering measures to tackle this from a planning perspective within the department.’
The MoS has confirmed that the fund in which Mr O’Brien invested is Standard Life’s Global REIT Focus Fund, which was launched in Ireland in January 2007.
The Irish Government did not legislate for REITs here until 2013, but the Standard Life fund allowed investors to invest in REITs and listed property firms elsewhere throughout the world.
At the time of Mr O’Brien’s involvement, Standard Life’s REIT fund had invested significantly in commercial, industrial and residential REITs in countries such as the US, the UK, Germany, Hong Kong, Australia and elsewhere.
The Standard Life fund promised investors healthy returns from economies where property supply was limited and demand was high – precisely the circumstances that have now made Ireland an attractive prospect for such funds.
For example, in a mid-2007 performance review of its REIT fund, Standard Life highlighted how it had done well in Singapore and Hong Kong ‘due to strong demand and low supply of property in those economies’.
‘We remain optimistic about the Asian market where rental growth and lack of supply show no signs of stalling,’ the review added.
Despite this optimism, Standard Life’s fund nosedived due to the global financial crisis and posted returns in excess of minus 50% in 2008.
The fund has since recovered and continues to trade, though according to his declarations, the minister relinquished his shares prior to 2009. Mr O’Brien did not answer questions about why he relinquished the shares.
The revelation about Mr O’Brien’s historical investment in REIT funds comes after he came under pressure when it emerged similar property investment funds are buying up entire housing estates, in the process pricing many first-time buyers out of the market.
The purchase by Round Hill Capital of close to 150 homes in Maynooth’s Mullen Park estate, at a time of desperate housing shortages, has triggered a new tipping point.
It also emerged this week that Round Hill has also bought 112 houses in Bay Meadows in Hollystown, in Dublin 15.
But concerns about the involvement of hedge funds and REITS in the Irish residential market are not new.
Mr O’Brien published a 2019 Bill – while Fianna Fáil was supporting the Fine Gael-led Government – which sought to prevent investment funds from acquiring entire developments.
That Bill stipulated that 30% of units in new developments be reserved for first-time buyers.
Speaking in the Dáil at the time, Mr O’Brien said: ‘REITs in the private rented sector are a small but rapidly expanding part of the housing sector. Additional supply is welcome but there have been numerous cases in which alreadybuilt developments have been bought entirely by one fund. This is crowding out first-time buyers and risks changing the character of areas of this country.’
In response, opposition TDs criticised Mr O’Brien and Fianna Fáil for being hypocritical.
‘It is little wonder that Fianna Fáil said nothing about these so-called tax-efficient property investment vehicles. In fact, under the confidence and supply agreement, Fianna Fáil has facilitated them in budget after budget,’ said Sinn Féin’s Eoin Ó Broin.
‘It is therefore a little bit rich of Deputy Darragh O’Brien to complain about the impact these funds are having on first-time buyers when his party was for so long complicit in the very tax laws that brought them into our housing system in the first instance.’
Mr O’Brien and Finance Minister Paschal Donohoe are now expected to outline a number of options aimed at addressing the REIT crisis to Government next week.
One possibility being considered by Mr O’Brien is understood to be the relaunch of his 2019 Bill – something Labour Housing spokeswoman Rebecca Moynihan has pledged to do if he fails to do so.
Another option involves changes to the tax incentives enjoyed by REITs and other international funds which use loopholes to minimise tax bills on profits from properties snapped up since the economic crash.
Meanwhile, the Attorney General is being consulted to ascertain if new laws to prevent ‘cuckoo’ funds from buying up entire housing developments will be constitutional.
