OK, if we assume Bodie and Doyle step in at the right estimated yield, presumably we have all the factors we need (apart from today's ECB announcement) to establish how far prices would have to drop to make investment mathematically attractive once more. I've had a go at the calculation but I won't quote the details since I'm probably wrong... but if we assume capital appreciation is zero, I don't think even a 30% drop would be enough. Anyone better qualified like to take a guess ?
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OK, if we assume Bodie and Doyle step in at the right estimated yield, presumably we have all the factors we need (apart from today's ECB announcement) to establish how far prices would have to drop to make investment mathematically attractive once more. I've had a go at the calculation but I won't quote the details since I'm probably wrong... but if we assume capital appreciation is zero, I don't think even a 30% drop would be enough. Anyone better qualified like to take a guess ?
D
Dipole
Guest
I figure a 2 bed apartment in Blanch should only rent for about €800. Some might argue that the current average rental price of €1050 is fair but I'll work off €800 figure p.m. which is €8800 with one month void excluding any additional expenses like management fee, ptsb, upkeep, etc.... Assuming professional investors will come back in to the market at 6% yield then doesn't that make the "worth" of this apartment €146,600 on the open market.
2 beds in Blanch are typically selling for over €300,000 so that is less than 50% of current market value.
A few pages back in the thread I figured that there was no stickiness in the market so is it possible that we could have a 50% crash in the value of two bed apartments in outlying parts of Dublin within 18 months?
Only really doubtful part of my calculations above is social welfare propping up the market which means that real rents will stay at the €1050 mark but still you are looking at a drop to well below 200,000 before an investor starts getting a yield of 6%
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plaudit
Guest
But prices rise by 5% a year in this country lads, when times are hard. Its 20% during the good years, which is 3 out of every 4 years. How many times have ye been told that by Estate Agents?
On the subject of putting your money where your mouth is:
I've just been offered a 2 bed apartment in Artane as part of the DCC affordable housing scheme. No decision will be made until I view the apartment. I am still bearish on the future of the market.
Opinions people?
I've just been offered a 2 bed apartment in Artane as part of the DCC affordable housing scheme. No decision will be made until I view the apartment. I am still bearish on the future of the market.
Opinions people?
G
Guest112
Guest
Let's remember too that a higher rental yield will be required as interest rates rise.
Investors have alternative channels for investing their money and the money markets become more attractive as interest rates rise.
Property investors will not be happy with 5% rent yield when interest rates reach 6%
Investors have alternative channels for investing their money and the money markets become more attractive as interest rates rise.
Property investors will not be happy with 5% rent yield when interest rates reach 6%
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Dipole
Guest
Discounted price will insulate yoju to a certain extent from house price collapse.
If you have any aspirations to start a family in the next 5 to 6 years then hold out for a three bed as transaction costs are high when selling property. You might also avoid mgmt fee on a three bed.
Good point. As things stand today, we're looking at ECB rates at 4% max.... any moves further than that can't be foreseen based on currently available data, but that's not to say that some nasty data won't rear its head in 2007.
4% ECB would indicate 6-7% yields at a minimum, but I wouldn't be surprised if we saw 8-10% yields over the next 5 years, given a massive loss of public confidence in property. 8-10% yield is a bargain, 6-7% is probably the least that a professional investor would want.
J
JayDub
Guest
After purchasing a home, the second more expensive purchase is a car. Sales of new cars have dropped 12% in September.
http://www.unison.ie/stories.php3?ca=9&si=1699765&issue_id=14723
With today's expected interest rate rise, first time buyers will see their mortgage payments rise by €391 compared to this time last year.
http://www.unison.ie/stories.php3?ca=9&si=1699829&issue_id=14723
Soft landing my This post will be deleted if not edited to remove bad language!!!
http://www.unison.ie/stories.php3?ca=9&si=1699765&issue_id=14723
With today's expected interest rate rise, first time buyers will see their mortgage payments rise by €391 compared to this time last year.
http://www.unison.ie/stories.php3?ca=9&si=1699829&issue_id=14723
Soft landing my This post will be deleted if not edited to remove bad language!!!
Agreed on the discount. No aspirations for family within the next 5 years, but then I suppose your circumstances can change over night. I don't think I could afford a three bed, and as a single person it would be beyond my needs anyway.
There's a lot to think about. Its not everyday you get offered an apartment at 50% discount. Surrounded by bulls in RL though, so need some nice bearish sentiment
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plaudit
Guest
As rates rises its not as attractive to borrow €30K for a new car. People will change every 4 years instead of 3 etc.
I agree. If it was a house you could happily live in for the next 20 years I'd say go ahead because the reduced price is probably worth it as there is still a risk (however remote I personally believe it to be) that prices won't crash.
But if its an apartment that you can't see yourself living in in 5 years time, I'd hold off. The greater danger here is that you're stuck somewhere unsuitable for your needs.
the bottom line in this is
a) can you comfortable afford the payments (when your mort goes to 6%)?
b) do you want to live in the area?
c) do you like the apartment?
You are getting an insulation against price drops due to the cheaper price of the house - so in that respect you are some what protected from any price drops.....
At a 50% discount to current market price and with a mortgage capped at 5% I'd buy. Prices are unlikely to fall much further than 50% and it is possible they will fall less.
So what would the mortgage @ 5% cost pm compared to renting an equivalent property?
I've no idea on figures yet, but I will be doing such comparisions tonight when I get home.
My understanding of affordable housing though is that you bear a proportionate loss if you sell?
If it's something like this...
[broken link removed]=
I think they will fall to about €240,000. That number is calculated based on a 6% yield, they currently rent for about €1,200 pcm.
Interestingly, they've had problems offloading the final phase of those apartments over the past few months. Price still seems very high for the area, maybe developer priced in anticipation of affordable housing scheme.
There is clawback if you sell within five years. This clawback is proportional to the discount you received and reduces over the five years. Thus if you bought and sold immediately at market value they would clawback the full amount of the discount (50%).
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