# Buy to Let Investors are Suffering Triple Whammy! Article www.independent.ie



## Steve D

To summarise:

1) Plummeting property prices;
2) Falling rents;
3) Rising interest rates

Link:

http://www.independent.ie/business/personal-finance/buytolet-is--no-longer-a-surefire-bet--youd-better-play-your-cards-right-if-youre-in-the-landlord-game--the-stakes-are-higher-than-ever-before-writes-louise-mcbride-1401961.html


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## max

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*

I think we are forgetting about #4:

Government giving away free/subsidised houses to the 'less well off'.

A triple whammy AND a punch from the referee.


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## ClubMan

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



max said:


> a Triple Whammy And A Punch From The Referee.




The premise of the headline seems flawed though - was buy to let *EVER *a "sure-fire" bet?


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## webtax

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



max said:


> I think we are forgetting about #4:
> 
> Government giving away free/subsidised houses to the 'less well off'.
> 
> A triple whammy AND a punch from the referee.



But if the referree wasn't paying rent relief to so many 'less well off' in the first place where would many landlords get their tenants from?


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## Brendan Burgess

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*

Don't believe everything you read in the Indo. 

Brendan


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## Mpsox

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*

Isn't this a case of supply and demand, too many houses and not enough tennants? Interest rates and falling property prices just add to it


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## barryl

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



ClubMan said:


> The premise of the headline seems flawed though - was buy to let *EVER *a "sure-fire" bet?


 
property prices have a long history of beating inflation over any 5-10 year period


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## Afuera

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



barryl said:


> property prices have a long history of beating inflation over any 5-10 year period


I'm sure the Japanese would love to hear that little mantra of yours.


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## barryl

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



Afuera said:


> I'm sure the Japanese would love to hear that little mantra of yours.


 
we are talking about Ireland  and the UK here not Japan


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## z109

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



barryl said:


> we are talking about Ireland  and the UK here not Japan


Okay, how about UK property prices 1989-1999?
[broken link removed]
(See Long Term Real House Price Trend chart on Page 3).

Note that the long-term appreciation trend that the Nationwide use is 2.7%. 

Average CPI over those years was 3.8%.


So even if houses had stuck to their 1989 price and increased by historical trend (2.7%) they would not have beaten inflation (3.8%).

Next random statistic you care to make up?


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## Jethro Tull

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



barryl said:


> we are talking about Ireland and the UK here not Japan


 
Your point being?

Oh sorry, I forgot, Ireland is different. Yawn....


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## barryl

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



yoganmahew said:


> Okay, how about UK property prices 1989-1999?
> [broken link removed]
> (See Long Term Real House Price Trend chart on Page 3).
> 
> Note that the long-term appreciation trend that the Nationwide use is 2.7%.
> 
> Average CPI over those years was 3.8%.
> 
> 
> So even if houses had stuck to their 1989 price and increased by historical trend (2.7%) they would not have beaten inflation (3.8%).
> 
> Next random statistic you care to make up?


 check your charts again and you will find exponential growth the following years thus property stays ahead of inflation,always remember that property is a long term investment


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## barryl

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



Jethro Tull said:


> Your point being?
> 
> Oh sorry, I forgot, Ireland is different. Yawn....


 
thats right,Ireland is different  yawn


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## MrKeane

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



barryl said:


> check your charts again and you will find exponential growth the following years thus property stays ahead of inflation,always remember that property is a long term investment


 
You said over 5-10 years, not after 10 years of a lag!

The trick is wait until the Irish market spends 10 years falling and then buy, hoping to catch the exponential growth.


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## Howitzer

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



barryl said:


> property prices have a long history of beating inflation over any 5-10 year period


Now I'm not stupid, I know Irish house prices are (were) higher than 10, 20, 30 years ago but I can't find any statistics to proove that they beat inflation. Do you have access to a house price index which charts Irish house prices over the last, 50 years, say? Here's the [broken link removed]statistics. 

To my uneducated eyes I would suspect that Irish property prices didn't beat inflation in the 20 year period between 1971 and 1991. I'd certainly put my hands up and say I'm wrong if you could just point me in the direction those house prices stats.


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## Towger

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



Howitzer said:


> To my uneducated eyes I would suspect that Irish property prices didn't beat inflation in the 20 year period between 1971 and 1991.


 
There are problems with the statistics, many years ago my father spend a weeks trying to work reverse out house price vs inflation for CGT, year by year. In end he was on the CSO and worked his way up the chain to one of the actuarys who compiled the figures. I don't remember the exact details, but the actuary could not explain the differences, except to assume they (the CSO) had changed (messed around) with how they calculated inflation over the years.


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## ClubMan

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



Towger said:


> the actuary could not explain the differences, except to assume they (the CSO) had changed (messed around) with how they calculated inflation over the years.


So he had no evidence but concluded that they had messed up? Hmm.....


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## ubiquitous

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



Towger said:


> There are problems with the statistics, many years ago my father spend a weeks trying to work reverse out house price vs inflation for CGT, year by year. In end he was on the CSO and worked his way up the chain to one of the actuarys who compiled the figures. I don't remember the exact details, but the actuary could not explain the differences, except to assume they (the CSO) had changed (messed around) with how they calculated inflation over the years.



The CGT index rates are/were purely estimates used by the Dept of Finance for the purposes of administering a particular aspect of tax law. They could never be relied upon as an accurate measure of inflation.

Btw, I very much doubt if the CSO use actuaries to compile statistics?


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## barryl

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



MrKeane said:


> You said over 5-10 years, not after 10 years of a lag!
> 
> The trick is wait until the Irish market spends 10 years falling and then buy, hoping to catch the exponential growth.


 
thats hoping not investing,what if the market improves after three years?


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## Jethro Tull

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



barryl said:


> thats right,Ireland is different yawn


 
please elaborate....


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## ClubMan

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



MrKeane said:


> The trick is wait until the Irish market spends 10 years falling and then buy, hoping to catch the exponential growth.


As another poster in another thread said...


DrMoriarty said:


> Timing the market is a M_ _ S  G _ M _.


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## barryl

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



Howitzer said:


> Now I'm not stupid, I know Irish house prices are (were) higher than 10, 20, 30 years ago but I can't find any statistics to proove that they beat inflation. Do you have access to a house price index which charts Irish house prices over the last, 50 years, say? Here's the [broken link removed]statistics.
> 
> To my uneducated eyes I would suspect that Irish property prices didn't beat inflation in the 20 year period between 1971 and 1991. I'd certainly put my hands up and say I'm wrong if you could just point me in the direction those house prices stats.


 
1971 average price for 3 bed semi in Ireland c.4,500 punt 1991 45,000 punt,(may not be 100% correct,but close to the mark)


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## ClubMan

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*

Inflation may not be the only relevant factor here. In past years I don't think that investors could write off (all or any of?) the mortgage interest against rental income so it may be that you'd need to see if house price capital gains outpaced both inflation and mortgage interest rates where relevant. And of course there are other ongoing and acquisition/disposal costs associated with owning a property which need to be factored in. And then you'd need to compare with other investment options (e.g. equities) in order to assess the opportunity costs of investing in property rather than something else. When somebody has the answer maybe they could call me?


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## ubiquitous

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



barryl said:


> 1971 average price for 3 bed semi in Ireland c.4,500 punt 1991 45,000 punt,(may not be 100% correct,but close to the mark)



That may be the case but its also the case that Ireland suffered exponential inflation in the 1970s & 1980s (which may or may not be reflected in official statistics) - so much so that the economy was on its knees and property investment was really only an option for the very rich and property speculation was non-existent. Banks were notoriously reluctant to give credit to anyone to buy property, even their own home - not exactly a great sign that there was money to be made in the sector.


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## ubiquitous

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



ClubMan said:


> In past years I don't think that investors could write off (all or any of?) the mortgage interest against rental income



This isn't correct, apart from the 1998-2001 period following the 1998 Bacon report.


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## Howitzer

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



barryl said:


> 1971 average price for 3 bed semi in Ireland c.4,500 punt 1991 45,000 punt,(may not be 100% correct,but close to the mark)


Do you have a source?


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## barryl

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



barryl said:


> 1971 average price for 3 bed semi in Ireland c.4,500 punt 1991 45,000 punt,(may not be 100% correct,but close to the mark)


 
period from 1971-1991 has a ratio of  1/10 or put it another way 10 times the original price

period from 1991 63,500 euro(50,000 punt)to 2011 average house price would have to be 630,000 to have an = ratio to prev.20 years

is it possible that  1971-1991 was a better time to own investment property?


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## ClubMan

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



ubiquitous said:


> This isn't correct, apart from the 1998-2001 period following the 1998 Bacon report.


Ah - OK. My mistake.


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## barryl

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



Howitzer said:


> Do you have a source?


 no source sorry,but the example is real


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## ubiquitous

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



barryl said:


> is it possible that  1971-1991 was a better time to own investment property?



As I said above in relation to that period...



ubiquitous said:


> Banks were notoriously reluctant to give credit to anyone to buy property, even their own home - not exactly a great sign that there was money to be made in the sector.


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## Howitzer

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



barryl said:


> no source sorry,but the example is real


One example can't really be used as the basis for a rational argument. Property prices didn't beat inflation between 1971 and 1991, the price of one property did. That's a poor argument for saying that property always beats inflation.



barryl said:


> property prices have a long history of beating inflation over any 5-10 year period


 
FYI, inflation over the same period had a compound value of 780% - according to the CSO statistics quoted.


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## z109

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



barryl said:


> check your charts again and you will find exponential growth the following years thus property stays ahead of inflation,always remember that property is a long term investment


Um, you did say *any* 5-10 year period did you not?

I gave you the benefit of the doubt and picked a 10 year period.

Your statement is demonstrably false. Please withdraw or qualify it.


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## Duplex

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*

Irish house prices 1971 to 2005 adjusted for inflation. 


http://www.flickr.com/photos/rosscads/455270545/


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## Jethro Tull

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*

I'm still waiting to hear *why* Ireland is different


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## barryl

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



yoganmahew said:


> Um, you did say *any* 5-10 year period did you not?
> 
> I gave you the benefit of the doubt and picked a 10 year period.
> 
> Your statement is demonstrably false. Please withdraw or qualify it.


 
Its usefull information as a guide,you are spliting hairs


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## Afuera

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



barryl said:


> Its usefull information as a guide,you are spliting hairs


It's not actually based on fact though is it? It would be more accurate to call it misinformation.


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## ubiquitous

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*

...the kind of misinformation that fooled a lot of amateur property investors into thinking they were tycoons, which brings us neatly back to the "surprising" nightmare scenario outlined by the OP...


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## Howitzer

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



Duplex said:


> Irish house prices 1971 to 2005 adjusted for inflation.
> 
> 
> http://www.flickr.com/photos/rosscads/455270545/


 
Excellant work. So for the 20 year period 1971 - 1991 house prices marginally beat inflation (holds hand up). It's only in the 14 years afterwards where the truism that house prices always beat inflation can be seen. The figures only run to 2005 so the inflation beating credentials of a falling housing market since then are, as yet, unproven.


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## MrMan

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



> I'm still waiting to hear why Ireland is different



in fairness to Barryl, his statement was as elaborate as yours, why don't you outline your points to him if you want to debate.



> It's not actually based on fact though is it? It would be more accurate to call it misinformation.



Did he not say it was a 'real' example?



> ...the kind of misinformation that fooled a lot of amateur property investors into thinking they were tycoons, which brings us neatly back to the "surprising" nightmare scenario outlined by the OP...



While I'm not going to stray into debating inflation and statistics the above quote is quite a regular occurence albeit generally in differnet words, but having the same meaning. Are some people just upset that they didn't jump on board the bandwagon at the time and make some easy money or do they really believe that those that invested in property were 'amateurs' pretty much fools for some reason.


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## z109

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



MrMan said:


> Did he not say it was a 'real' example?


No he said that house prices always beat inflation in any 5-10 year period.



> While I'm not going to stray into debating inflation and statistics the above quote is quite a regular occurence albeit generally in differnet words, but having the same meaning.


We are not debating inflation and statistics, we are assessing the effects of inflation on an investment sum and whether property in any given period of 5-10 years will preserve that investment sum against inflation. Please read previous posts before replying.



> Are some people just upset that they didn't jump on board the bandwagon at the time and make some easy money or do they really believe that those that invested in property were 'amateurs' pretty much fools for some reason.


That's an insulting remark to aim at those who are trying to prevent further misinformation being spread about the risk/reward evaluation of property as an investment.

There is no equation between 'amateur' and 'fool' unless you have no business plan of how your investment is going to give you a return.


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## ubiquitous

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



MrMan said:


> Are some people just upset that they didn't jump on board the bandwagon at the time and make some easy money or do they really believe that those that invested in property were 'amateurs' pretty much fools for some reason.



I think the entire point of the thread is that the notion of "make some easy money" is now being revealed as a mirage.


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## MrMan

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



> I think the entire point of the thread is that the notion of "make some easy money" is now being revealed as a mirage.



i do accept that there has been a misunderstanding that all it took for people to make money was to but into the property investment bonanza, but it did make a lot of people alot of money over a good ten year period, and alot of that was as much down to luck as anything else. The market has changed now so that to make your money you really have to look into every aspect and accept the risks, but previously i do think that while the risks were there, the same thought was not required to the same extent.


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## barryl

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



Howitzer said:


> Excellant work. So for the 20 year period 1971 - 1991 house prices marginally beat inflation (holds hand up). It's only in the 14 years afterwards where the truism that house prices always beat inflation can be seen. The figures only run to 2005 so the inflation beating credentials of a falling housing market since then are, as yet, unproven.


 
so you are satisfied that in Ireland at least ,from 1971 to 2005 that house prices beat inflation,as nobody can tell for sure what will happen in the future


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## ajapale

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*

MrMan, 

Could you use the quote (or multiquote) facility .

Its very hard to follow your posts when you don't know who you are quoting.

Thanks,
aj

Can we keep the discussion focused on the "Buy to Let" triple whammy raised by the OP?


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## Afuera

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



barryl said:


> so you are satisfied that in Ireland at least ,from *1971 to 2005 that house prices beat inflation*,as nobody can tell for sure what will happen in the future


I think all we've managed to establish is that one particular house managed to beat the officially reported level inflation over a certain 24 year period. It's quite a bit removed from your original claim that house prices would beat inflation over any 5-10 period. I'm also wondering, like Jethro Tull, why we have to ignore any precedents seen in other markets? What makes the Irish market unique so that it can avoid a 20 year downturn?


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## ajapale

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



Steve D said:


> To summarise:
> 
> 1) Plummeting property prices;
> 2) Falling rents;
> 3) Rising interest rates





			
				Indo Article Dowling said:
			
		

> "*Buy-to-let is a very different investment today to five years ago. You can't get into the market now and expect a quick return in two years.*"
> 
> *Rising mortgage interest rates* have forced landlords to increase -- or even subsidise -- rents. Although the ECB rate has not changed over the past year, the credit crunch ........ has also forced lenders to increase the interest charged on mortgages.
> 
> Many investors ... are suffering because the *value of their apartments has plummeted*.
> 
> Investors have bought in areas where *tenants are hard to find*.
> 
> In the last few years, there was an *explosion of amateur investors* who got into buy-to-let for the wrong reasons.
> 
> People who *bought because their neighbours had investment properties.*
> 
> Others *bought because of tax incentives*, such as the Section 23 scheme,  "People [who took advantage of Section 23] have been left with properties that are idle -- they're getting tax relief, but no rent.
> 
> Even when investors have bought in good locations, it can be *hard to secure rent*. "Not every tenant pays their rent and not every tenant pays on time."


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## bo se

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



Afuera said:


> I'm sure the Japanese would love to hear that little mantra of yours.


 
Afuera/ Jethro Tull,
One difference between Ireland and Japan rarely mentioned when people cite the Japanese example, is that the population in Ireland is growing strongly (even now with positive net migration though less strong than in past few years and a growing indigenous population). Japan's population in contrast has been falling for many years which is not very supportive of demand.


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## Jethro Tull

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



MrMan said:


> in fairness to Barryl, his statement was as elaborate as yours, why don't you outline your points to him if you want to debate.


 
My point was to sarcastically throw out the oft used expression (usually by FF trolls and VIs) that Ireland is different. A bit like 'da fundamentals are sound', they are bandied around an acquiescent media with no follow up or outline of *why* Ireland is different

I later stated that I was still awaiting reason(s) why Ireland was different, barryl has posted several times since but hasn't answered this.

So I will ask a straight question, WHY IS IRELAND DIFFERENT?

also why will a bubble inflated by cheap credit and a 'you can't lose on property' mentality not deflate (or even burst) despite the fact:

- unemployment is rising
- interest rates are rising on an almost weekly basis
- there are (depending on your source) between 200,000 & 300,000 empty properties
- buy to let investors are being squeezed by rising cost of interest payments and falling rents
- slowing economy
- all signs point to a recession

I could go on but I'm going to the pub for a quiet pint


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## Howitzer

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



barryl said:


> so you are satisfied that in Ireland at least ,from 1971 to 2005 that house prices beat inflation,as nobody can tell for sure what will happen in the future


Sure. Note from the graph that any period where the line turns south that inflation is beating property prices. There were plenty of 5 year periods from those figures where that was the case.


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## Steve D

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



Jethro Tull said:


> - unemployment is rising
> - interest rates are rising on an almost weekly basis
> - there are (depending on your source) between 200,000 & 300,000 empty properties
> - buy to let investors are being squeezed by rising cost of interest payments and falling rents
> - slowing economy
> - all signs point to a recession


 
Another important point to add to this list is that many immigrants from E Europe who came for work are leaving because of poor job prospects (especially in construction). This will also have a big effect on the rental market, increasing supply, increasing the length of void periods and reducing rents.


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## Afuera

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



bo se said:


> Afuera/ Jethro Tull,
> One difference between Ireland and Japan rarely mentioned when people cite the Japanese example, is that the population in Ireland is growing strongly (even now with positive net migration though less strong than in past few years and a growing indigenous population). Japan's population in contrast has been falling for many years which is not very supportive of demand.


Point taken that Ireland and Japan are not directly comparable. I only brought it up to show the absurdity of barryl's "hasn't happened yet, can't happen" attitude. I must say there appears to be some very shaky beliefs out there that I am surprised to still see being passed off as advice.

Regarding the article posted by the OP, I think that this quote from Frank Conway of the Irish Mortgage Corporation is very telling:
"Buy-to-let is a very different investment today to five years ago. You can't get into the market now and expect a quick return in two years."

What happened to "in it for the long term", "sound fundamentals" etc.? People expecting a quick return after two years is simply speculation and will always end in tears. Since 40% of new builds were being bought by investors, it will be interesting to see how many of them were really in it for the long term after all.


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## newirishman

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*

I personally think the term "buy-to-let" investment is very much misleading for the last ten years in Ireland. Nobody bought to let. They where all buying to make big money due to the inflation of property prices. The term "buy-to-find-someone-else-to-dump-this-shoebox-on-for-at-least-40%-more-than-I-have-forked-out-12-months-ago" would be more accurate.

It was the same with the dotcom bubble at the end of the nineties, and is the same with whatever bubble you choose.

A normal investor usually tries to get some return on his investment, not only caused by price inflation (because property prices don't always go up) but - when speaking about property - by getting some rental yields for example. 

Unfortunately, this rental yield calculation didn't quite work out. I mean, you fork out 450K for a 2 bed shoebox in Dundrum, and you can rent it out for say 18K a year if you are lucky: you can get more interest on your current account.

And then giving out on the government for providing social housing? Ridiculous.


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## barryl

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



Steve D said:


> To summarise:
> 
> 1) Plummeting property prices;
> 2) Falling rents;
> 3) Rising interest rates
> 
> Link:
> 
> http://www.independent.ie/business/...ver-before-writes-louise-mcbride-1401961.html


 
rents are up 22% over the last three years according to a bank of Ireland report last week


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## barryl

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



Howitzer said:


> Sure. Note from the graph that any period where the line turns south that inflation is beating property prices. There were plenty of 5 year periods from those figures where that was the case.


 
property investing is for the long term,dont expect returns after 5 years


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## shanegl

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



barryl said:


> property investing is for the long term,dont expect returns after 5 years



But you said that's exactly what we could expect.


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## barryl

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*

no,I said property beats inflation in any 5-10 year period.


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## Bronte

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



Steve D said:


> To summarise:
> 
> 1) Plummeting property prices;
> 2) Falling rents;
> 3) Rising interest rates


 
Anyone who bought a buy to let expecting a return in two years is very naive.  But sure some people made a killing on it and fair play to those who had the guts to get in buy, wait and sell at a hefty profit.  It's a high risk strategy.  But not everybody will succeed at this and many will get burned.  Property ideally is a long term investment.  

Going back to the OP's point: Plummeting property prices don't matter if you are not going to sell. 
Falling rents won't affect you if the rent still covers the mortgage/costs
Ditto rising interest rates.  Also I'm sure some people can afford to pay the mortgage even if they have no tenants.  The people that are worst affected are those who bought in the last two years, paid over the odds, in a bad location and have no room for manoeuvre on interest rates/rent decreases and are now losing their jobs.      

People will always need to rent but you have to have property in a good location, one should have factored in the possibility of a rent decrease and mortgage increase into your calculations before making the decision to purchase in the first place.


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## Howitzer

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



barryl said:


> no,I said property beats inflation in any 5-10 year period.


Err, and the graph plainly shows shows that property doesn't beat inflation over *any* 5-10 year period.



barryl said:


> rents are up 22% over the last three years according to a bank of Ireland report last week


 
Err, did you read the Daft report showing rents have started falling and are now 2% lower since january

[broken link removed]

Picking and choosing what you read and choose to believe is one thing but passing that off as fact is another. There may well be 2 sides to every argument but more often than not the facts and figures speak for themselves.

http://daftwatch.atspace.com/


----------



## Duplex

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



barryl said:


> no,I said property beats inflation in any 5-10 year period.


 

Depends on when and where you buy.  If you bought a house in the US in 1890 it would have taken fifty years for it to return to its 1890 value in real terms.  

Good article on inflation and long term house price growth.


http://economistsview.typepad.com/economistsview/2006/03/shiller_longter.html


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## Afuera

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



Duplex said:


> Depends on when and where you buy.  If you bought a house in the US in 1890 it would have taken fifty years for it to return to its 1890 value in real terms.
> 
> Good article on inflation and long term house price growth.
> 
> 
> http://economistsview.typepad.com/economistsview/2006/03/shiller_longter.html


We're talking about the Irish/UK market here though so we can ignore everything that happened in those other countries 

Interesting article though.


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## barryl

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



Howitzer said:


> Err, and the graph plainly shows shows that property doesn't inflation over *any* 5-10 year period.
> 
> 
> 
> Err, did you read the Daft report showing rents have started falling and are now 2% lower since january
> 
> [broken link removed]
> 
> Picking and choosing what you read and choose to believe is one thing but passing that off as fact is another. There may well be 2 sides to every arguement but more often than not the facts and figures speak for themselves.
> 
> http://daftwatch.atspace.com/


 I would imagine that Boi have included this 2% drop,all my rental properties reflect a 22% increase in rent over the last 3 years


----------



## Afuera

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



Bronte said:


> Anyone who bought a buy to let expecting a return in two years is very naive.  But sure some people made a killing on it and fair play to those who had the guts to get in buy, wait and sell at a hefty profit.  It's a high risk strategy.  But not everybody will succeed at this and many will get burned.  Property ideally is a long term investment.


I fully agree with you. The fact that the head of the Irish Mortgage Corporation mentions people expecting to make a killing in two years suggests that the mentality was prevalent though.



Bronte said:


> Going back to the OP's point: Plummeting property prices don't matter if you are not going to sell.
> Falling rents won't affect you if the rent still covers the mortgage/costs
> Ditto rising interest rates.  Also I'm sure some people can afford to pay the mortgage even if they have no tenants.  The people that are worst affected are those who bought in the last two years, paid over the odds, in a bad location and have no room for manoeuvre on interest rates/rent decreases and are now losing their jobs.


Plummeting property prices suggests that it will soon affect more than those that only bought in the last two years. If an investor is not getting their mortgage covered every month by their tenants you would have to wonder what upside they have (if any) to remain in the market now.



Bronte said:


> People will always need to rent but you have to have property in a good location, one should have factored in the possibility of a rent decrease and mortgage increase into your calculations before making the decision to purchase in the first place.


I agree that there will always be a need for property rentals. It does need to be quantified though. If 70% of our population already owns their own home, what amount of rental properties do we need to accomodate all the would-be renters out there?


----------



## bo se

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



barryl said:


> property prices have a long history of beating inflation over any 5-10 year period


 The debate about property beating inflation seems a bit of a red herring to me. For investors using borrowed money there is no need for it to do so. 

For example you buy a house for €100k in 2008, your rent covers your mortgage and inflation runs at 3% per annum for 15 years (I don't want to be acused of 'short termism'). By 2023 your house would be worth €156k which is a €56k profit albeit in 2023 money.


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## Jethro Tull

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



bo se said:


> your rent covers your mortgage


 
problem is with rising inventoires (just look at daftwatch) a LOT of BTL investors can't even get enough rent to cover the interest only option.

Seeing as the markets expects the ECB to raise rates again (and banks spreads over ECB are increasing) and things become a whole lot worse seeing as there is not much happening on the capital appreciation side of things


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## Howitzer

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



barryl said:


> I would imagine that Boi have included this 2% drop,all my rental properties reflect a 22% increase in rent over the last 3 years


 
Here's the article 

[broken link removed]



> rents between March 2006 and March of this year have risen by 22pc


 
No source is given and the figures are 3 months out of date.

Given the fact that the rest of the article is based on the premise that the ECB will be lowering rates when the ECB has stated that they will be raising them I don't give too much credibility to the rest of the conclusions drawn from it. The article was published the day after the ECB stated they would be raising rates. 


> Dr McLaughlin believes this will put downward pressure on inflation and prompt the European Central Bank (ECB) to lower rates, just as it did during the last cyclical slowdown in 2001-2003.
> Currently, the base rate is 4pc and each quarter point cut would reduce the average monthly mortgage repayment by €50.
> "As much as the market mood has changed, we still believe the repo rate will fall in 2008, in response to a steady slowdown in economic activity and retain our forecast of a half-point reduction, albeit pushing the first cut into the third quarter," said Dr McLaughlin.


----------



## z109

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



bo se said:


> The debate about property beating inflation seems a bit of a red herring to me. For investors using borrowed money there is no need for it to do so.
> 
> For example you buy a house for €100k in 2008, your rent covers your mortgage and inflation runs at 3% per annum for 15 years (I don't want to be acused of 'short termism'). By 2023 your house would be worth €156k which is a €56k profit albeit in 2023 money.


You are confusing house price inflation and consumer price inflation.


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## barryl

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



bo se said:


> The debate about property beating inflation seems a bit of a red herring to me. For investors using borrowed money there is no need for it to do so.
> 
> For example you buy a house for €100k in 2008, your rent covers your mortgage and inflation runs at 3% per annum for 15 years (I don't want to be acused of 'short termism'). By 2023 your house would be worth €156k which is a €56k profit albeit in 2023 money.


 
I dont see the red herring here,do you mean that the profit of 56,000 was not worth the effort?


----------



## barryl

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



Howitzer said:


> Here's the article
> 
> [broken link removed]
> 
> 
> 
> No source is given and the figures are 3 months out of date.
> 
> Given the fact that the rest of the article is based on the premise that the ECB will be lowering rates when the ECB has stated that they will be raising them I don't give too much credibility to the rest of the conclusions drawn from it. The article was published the day after the ECB stated they would be raising rates.


 
the ecb said that they may increase interest rates on their next meeting.


----------



## newirishman

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



barryl said:


> I dont see the red herring here,do you mean that the profit of 56,000 was not worth the effort?



err... there was no profit of 56,000. That's exactly his point. Because  156,000 in 2023 are _the same_ as 100,000 in 2008. Hence: No profit.

Recommend to read this: http://en.wikipedia.org/wiki/Inflation to start with.

Of course: if you have rented it for say 6 K a year (increasing 3% each year) than you would have made 6% profit. Minus costs like interest on mortgage, costs for keeping the place up and running, insurance, etc.etc.etc.


----------



## barryl

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



newirishman said:


> err... there was no profit of 56,000. That's exactly his point. Because 156,000 in 2023 are _the same_ as 100,000 in 2008. Hence: No profit.
> 
> Recommend to read this: http://en.wikipedia.org/wiki/Inflation to start with.
> 
> Of course: if you have rented it for say 6 K a year (increasing 3% each year) than you would have made 6% profit. Minus costs like interest on mortgage, costs for keeping the place up and running, insurance, etc.etc.etc.


 
how do you make out that there was no profit,when in the example there is a 56,000 euro profit


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## Jethro Tull

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



barryl said:


> how do you make out that there was no profit,when in the example there is a 56,000 euro profit


 
what hes trying to say is if you 100,000 at a point in time and that money only grows with inflation then in *real* terms you have not made a profit.

i.e. you have the same spending power as you originally had


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## shanegl

No, his point was the effect of gearing. The nominal mortgage debt does not change. Sell the house for 156K, clear mortgage of 100K, free profit of 56K. Remember, you had a mortgage on the property, you didn't stump up the price of the house in cash.


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## Jethro Tull

shanegl said:


> No, his point was the effect of gearing. The nominal mortgage debt does not change. Sell the house for 156K, clear mortgage of 100K, free profit of 56K. Remember, you had a mortgage on the property, you didn't stump up the price of the house in cash.


 
my mistake, i was reading newirishman's post and assuming they were considering an upfront investment of 100k


----------



## bo se

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



barryl said:


> I dont see the red herring here,do you mean that the profit of 56,000 was not worth the effort?


 On the contrary - it's well worth it. My point is you don't need to prove that houses must rise in value faster than CPI to be profitable in the long term. To push the example I gave a bit further house prices could rise by 2% v. CPI 3% and you would still show a profit of €21k after 15 years.


----------



## Afuera

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



bo se said:


> On the contrary - it's well worth it. My point is you don't need to prove that houses must rise in value faster than CPI to be profitable in the long term. To push the example I gave a bit further house prices could rise by 2% v. CPI 3% and you would still show a profit of €21k after 15 years.


This is assuming no void periods or expenses on the property of course. Isn't the main theme of the article linked to by the OP that this is much more likely to be a problem going forward?


----------



## barryl

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



bo se said:


> On the contrary - it's well worth it. My point is you don't need to prove that houses must rise in value faster than CPI to be profitable in the long term. To push the example I gave a bit further house prices could rise by 2% v. CPI 3% and you would still show a profit of €21k after 15 years.


 
If you check back to page one (clubman) you will see how this line of conversation came about.


----------



## Howitzer

More bad news today for investors

Rents down by [broken link removed].

[broken link removed] quite substantially, irrespective of what the ECB does.


----------



## Thomas22

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



bo se said:


> The debate about property beating inflation seems a bit of a red herring to me. For investors using borrowed money there is no need for it to do so.
> 
> For example you buy a house for €100k in 2008, your rent covers your mortgage and inflation runs at 3% per annum for 15 years (I don't want to be acused of 'short termism'). By 2023 your house would be worth €156k which is a €56k profit albeit in 2023 money.




Find me a property at current prices that covers mortgage, expenses and voids periods and you may have a point.

Rental yields in Ireland are currently around 3.5% so the investor probably has to contribute about 2.5% per annum to cover interest, expenses and void periods.
If, as you have assumed, inflation is around 3% then a risk free interest bearing account should yield around 5.5% over the same.
If the investor saved the 2.5% pa and invested it in the risk free account they would have 56k after 15 years.

If they invested the money in equities then after 15 years they would have about 70k profit.


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## barryl

Howitzer said:


> More bad news today for investors
> 
> Rents down by [broken link removed].
> 
> [broken link removed] quite substantially, irrespective of what the ECB does.


 
well i think the real bad news for investors right now is that banks have stopped lending altogether or have reduced ltv below 60%


----------



## bo se

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



Thomas22 said:


> Find me a property at current prices that covers mortgage, expenses and voids periods and you may have a point.
> 
> Rental yields in Ireland are currently around 3.5% so the investor probably has to contribute about 2.5% per annum to cover interest, expenses and void periods.
> If, as you have assumed, inflation is around 3% then a risk free interest bearing account should yield around 5.5% over the same.
> If the investor saved the 2.5% pa and invested it in the risk free account they would have 56k after 15 years.
> 
> If they invested the money in equities then after 15 years they would have about 70k profit.


 
I made a few simple assumptions to illustrate that property doesn't need to outperform CPI to be profitable in the long term. End of story.

I did not as you seem to presume suggest this is a good time to invest in property although I am sure there are some few properties to be found which do cover interest, expenses and voids. You can adjust my assumptions all you like to make property investment appear favourable or unfavouable. The same applies to the alternative investments you are suggesting. Tell someone who bought Bank of Ireland shares a year ago at around €16 how great shares are. Even your 'risk free' savings accounts have risk (I was in the queue outside Northern Rock not many months ago for my risk free deposit).


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## max

I reckon you're wasting your time anyway at this racket boys, I don't know how any of you think you can make money in a market, housing recession or no housing recession, where the government is giving away houses and apartments for free/subsidised rate across the fence!

The pointlessness reminds me of that song - Anyone know it - 'Buildin up and tearin England down'!


----------



## annette mac

I think you really do have to take a long term view on property, the people who are getting their fingers burned are those who couldn't really afford the investment in the first place and extended themselves beyond what is sensible.  A little history - I bought my first house in Dublin in for 10,495 pounds in 1975, they now sell for 595,000 euro.  My second for 41,500 pounds in 1987, it's now worth 1.2 million.  I bought a house in Spain in 1999 for 53,000 pounds it's now worth 220.000 euro.  I part own a house bought for 1999 for 120,000 pounds now worth 425,000 euro.  As you can see from the above, all have been good investments in that they certainly exceed inflation figures and what could be obtained by depositing that amount in a bank. Just how good an investment they are depends on where they are and how desirable a house type they are.  I now intend to buy in Orlando, Florida where it is possible to buy a 4 bedroom, 3 bathroom house with a private pool for approx 210,000 euro.  The same house would have sold for 350,000 euros 18 months ago, the only reason that this investment makes sense is because I do not need a mortgage.  For a cash buyer it's a steal but it is not a good investment for anyone who needs a mortgage.  Caveat emptor!


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## ang1170

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



barryl said:


> no,I said property beats inflation in any 5-10 year period.


 
Now why would you keep saying something that is demonstrably untrue?


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## Steve D

The total number of properties for rent on Daft has almost reached 15,000 now! With immigrants returning to their home countries, who is going to rent these out? Have a look at these graphs.

http://daftwatch.atspace.com/

 The ECB are also likely to increase interest rates by 0.25% next week.


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## shnaek

Steve D said:


> The total number of properties for rent on Daft has almost reached 15,000 now! With immigrants returning to their home countries, who is going to rent these out? Have a look at these graphs.
> 
> http://daftwatch.atspace.com/
> 
> The ECB are also likely to increase interest rates by 0.25% next week.



Those are some steep graphs!


----------



## mfh1

before talking about whether rent covers mortgage you need to know what type of mortgage it is-if its a 25 year with interest and capital repayments and the rent covers 80% of monthly mortgage repayments,then you're doing ok.
simple formula-if yield plus capital appreciation is more than interest then generally you're in profit-inflation doesn't really matter


----------



## Howitzer

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



barryl said:


> the ecb said that they may increase interest rates on their next meeting.


 
ECB raised rates this afternoon. Banks "may" pass on the increase to their customers.


----------



## ClubMan

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



Howitzer said:


> ECB raised rates this afternoon. Banks "may" pass on the increase to their customers.


They *will *pass it on for _ECB _tracker mortgages. They *most likely will *pass it on for variable rate customers and new rates. They *will probably* reflect this in their fixed rates. They *may *pass it on to their saving customers. What's the surprise?


----------



## Remix

*Re: Buy to Let Investors are Suffering Triple Whammy! Atticle www.independent.ie*



ClubMan said:


> They *will *pass it on for _ECB _tracker mortgages. They *most likely will *pass it on for variable rate customers and new rates. They *will probably* reflect this in their fixed rates. They *may *pass it on to their saving customers. What's the surprise?


 

Back on the 11th of last month when Howitzer said ECB *will *raise rates, Barryl corrected him and said the ECB *may* raise rates.
I suspect Howitzer is putting closure on that particular exchange and having some fun with the word '*may*'


----------



## Steve D

This is getting worse with increasing numbers of properties for rent and for sale.

The number of properties for rent on Daft has now exceeds 16K:
http://www.daft.ie/searchrental.daft?s%5Bcc_id%5D=&search=1&x=11&y=9

The number of properties for sale on Daft is 76.7K:
http://www.daft.ie/searchsale.daft?s%5Bcc_id%5D=&search=1&x=3&y=7

Have a look at some of the graphs on this site:
http://daftwatch.atspace.com/


----------



## charliemacck

Steve D said:


> This is getting worse with increasing numbers of properties for rent and for sale.
> 
> The number of properties for rent on Daft has now exceeds 16K:
> http://www.daft.ie/searchrental.daft?s%5Bcc_id%5D=&search=1&x=11&y=9
> 
> The number of properties for sale on Daft is 76.7K:
> http://www.daft.ie/searchsale.daft?s%5Bcc_id%5D=&search=1&x=3&y=7
> 
> Have a look at some of the graphs on this site:
> http://daftwatch.atspace.com/


 
You know what they say about lies, damned lies and statistics.


----------



## Steve D

charliemacck said:


> You know what they say about lies, damned lies and statistics.


 
Not queit sure what you mean by this silly comment. These are the numbers from the Daft website. If anything they are understated, because for example, where a developer has large numbers of houses for sale in one development there is usually only one advert on Daft!


----------

