Future price of Irish properties

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1. Irish house prices relative to income are the highest in the world.

>Source - The Economist and others. The average house price here is heading for 10x average earnings. Dublin average prices expected to be €400K by the end of 2006 and circa €300K nationwide. (In the UK, it is about 6-8x and most commentators there think that is too high.) See [broken link removed]

2. Irish prices are higher than the UK (about 40% higher) but salaries are lower in general.

>Source - personal comparisons. You will pay circa €1.5m for a good condition, 1400-1500sq.ft period house in Dublin 6 which is comparable to the London areas of SW6, W4, N1 etc. The same house there would cost £675K-£750K. Look at www.findaproperty.com and have a look in Fulham, Chiswick for what £600K will buy you and compare that to Ranelagh, Rathgar, Rathmines etc.

4. You can rent a house in nice parts of Dublin for about 60% of the cost of buying it. This is based on personal experience of our rented house in South Dublin. People are willing to pay a large premium for "ownership" which is unrealistic.

Source - We've looked at several houses which were on sale or for rent at the same time. In addition, you can see this on Daft and Myhome.ie. Look at how much it would cost to rent vs. buy different houses in the same area.

Example 1 - Dublin 6

To rent - €4000/month

http://www.daft.ie/searchrental.daft?search=1&s[cc_id]=ct1&s[a_id]=pc6&s[mnp]=2800&s[mxp]=&s[bd_no]=&limit=10&search_type=rental&id=381116

To buy - very similar €1.7m AMV

[broken link removed]

Example 2 - Sandycove

http://www.daft.ie/searchrental.daft?search=1&s[cc_id]=ct1&s[a_id]=ga5&s[mnp]=2800&s[mxp]=&s[bd_no]=&limit=10&search_type=rental&id=363353

It has been on the rental market for a while, so I'd assume the actual rent they will get will be less than €4K, nearer €3800. That's a €900K mortgage on a capital and repayment basis, or a €1.3m on interest only. If that house were to sell, it would be nearer €1.6-€1.7m based on what properties nearby have sold for.

I'd look for others, but a quick skim of Daft and Myhome will confirm this - there is a striking difference. I assume it is because investors are simply covering interest-only mortgages assuming that capital upside is a given. This is not the case in other markets - in London, rents are much closer to mortgage payments than they are in Dublin.
 
Well researched post Neffa, didn't think there would be anything reasonable in Fulham for that sort of cash. Also would think that 4k for that house in Sandycove is a bit optimistic
 
This "Rent is dead money" psychology is a lot of what is causing the price of property to spike in Ireland.

Not wishing to bring up old sentiment so I make this point as generic as possible.

The thought of "Rent is dead Money" has been passed down from generation to generation since the days of Landlords (19th C) - . At this time not many indigenous Irish people owned land and most had to pay rent to Landlords to be allowed to farm land belonging to the Landlord and live in a small house provided by same landlord. The average Irish person never owned anything and never ever gained from capital appreciation etc.

However. there was a big change and suddenly our forefathers were free to own their own land - it has become like a drug ever since.

There is an inherent genetic addiction passed down from generations that we must at all costs own our own piece of Ireland.

Now that is where the "Rent is dead money" comes from - it is a message intertwined in our D.N.A to never let anyone make us pay to live somewhere again..

However, if we look at things realistically - to live somewhere in Ireland one has three main options:

1. Buy a house outright - you own it fully.
2. Get the bank to buy a house for you - mortgage.
3. Rent.

How many people can buy a house outright - I would imagine it is a small percentage- so that is not really a possibility for most.

So people will either get a mortgage or rent.

Very generally, if you rent you pay say €1000 a month. For 25 years this will cost you €250,000.

If you get the bank to buy you an average house of value €400,000 it will cost you €2000 a month for 25 years at 3.5% - so total cost is €600000.
Total cost charged by the bank for this service is €200,000.
So now you have a house that you own after 25 years.

Ok, so after 25 years of renting you have no asset - but you do have that extra €1000 a month that you have saved in Rabo bank at 3.2% interest by not paying the extra cost of the mortgage outlined above. This will yield you approximately €456000 after 25 years - enough hopefully to buy a nice house outright to retire in.

So which money is more dead??
 
Neffa said:
1. Irish house prices relative to income are the highest in the world.

>Source - The Economist and others. The average house price here is heading for 10x average earnings. Dublin average prices expected to be €400K by the end of 2006 and circa €300K nationwide. (In the UK, it is about 6-8x and most commentators there think that is too high.) See [broken link removed]

2. Irish prices are higher than the UK (about 40% higher) but salaries are lower in general.

>Source - personal comparisons. You will pay circa €1.5m for a good condition, 1400-1500sq.ft period house in Dublin 6 which is comparable to the London areas of SW6, W4, N1 etc. The same house there would cost £675K-£750K. Look at www.findaproperty.com and have a look in Fulham, Chiswick for what £600K will buy you and compare that to Ranelagh, Rathgar, Rathmines etc.

4. You can rent a house in nice parts of Dublin for about 60% of the cost of buying it. This is based on personal experience of our rented house in South Dublin. People are willing to pay a large premium for "ownership" which is unrealistic.

Source - We've looked at several houses which were on sale or for rent at the same time. In addition, you can see this on Daft and Myhome.ie. Look at how much it would cost to rent vs. buy different houses in the same area.

Example 1 - Dublin 6

To rent - €4000/month

http://www.daft.ie/searchrental.daft?search=1&s[cc_id]=ct1&s[a_id]=pc6&s[mnp]=2800&s[mxp]=&s[bd_no]=&limit=10&search_type=rental&id=381116

To buy - very similar €1.7m AMV

[broken link removed]

Example 2 - Sandycove

http://www.daft.ie/searchrental.daft?search=1&s[cc_id]=ct1&s[a_id]=ga5&s[mnp]=2800&s[mxp]=&s[bd_no]=&limit=10&search_type=rental&id=363353

It has been on the rental market for a while, so I'd assume the actual rent they will get will be less than €4K, nearer €3800. That's a €900K mortgage on a capital and repayment basis, or a €1.3m on interest only. If that house were to sell, it would be nearer €1.6-€1.7m based on what properties nearby have sold for.

I'd look for others, but a quick skim of Daft and Myhome will confirm this - there is a striking difference. I assume it is because investors are simply covering interest-only mortgages assuming that capital upside is a given. This is not the case in other markets - in London, rents are much closer to mortgage payments than they are in Dublin.
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Indeed an excellent post. Problem is no one is listening to this, it's like the child with his hands to his ears, you can raise your voice as much as you like, but he'll just go 'nah nah nah nah nah' and press his hands ever tighter on his ears. We've no experience of asset bubbles in Ireland, cos we've only just become rich enough to have them. As a society we have no collective memory of hard times brought about by self-inflicted speculation... times past were all hard, times now are good.... But boy are we making up for lost ground.

No amount of rational economic analysis will convince someone, and its the majority still, who religiously believes that property in a one-way bet to riches. The herd believes property prices will never go down in any serious way that would result in losses. No matter what the price who "can never lose on property"... Any hypothetical losses will be made back in the "long term". The herd believes that being highly geared is essentially zero risk, cos in "the long-term".....
 
Some interesting posts from everyone, pity I'm busy today!

Ok, so after 25 years of renting you have no asset - but you do have that extra €1000 a month that you have saved in Rabo bank at 3.2% interest by not paying the extra cost of the mortgage outlined above. This will yield you approximately €456000 after 25 years - enough hopefully to buy a nice house outright to retire in.
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Two issues here - firstly is rent of €1,000 realistic for a house worth 400K?
Secondly you are assuming capital appreciation of virtually nil, inflation likewise, as the 3.2% barely covers our supposed inflation rate, also do you forsee rent dropping in real terms?
Additionally you have the vagaries of tenancy law to deal with!

Neffa:
A quick point on UK and Irish wage to house values, to my mind this pretty much identical:
UK National average wage: £22,411 Average House Price (per friday last) £185K ratio is therefore 1:8.4
Irish national average wage €32K (couldnt find confirmation) Average House price €278K ratio is therefore 1:8.5

Additionally, the housing stock is vastly different, so are they really comparable? I don't know London at all, but are places such as Fulham, Chiswick etc as handy as the likes of Ranelagh, Rathmines etc, these places in Dublin are a mile from the city centre (admittedly the transport system here is abysmal) and any inter city comparisons are a bit hypothetical.
 
Glenbhoy,

I never said it had to be the same house - I am being very general in making the point that isn't paying interest on a mortgage as dead as the money used to pay rent ? Isn't it just psychology that is blinding people in general from seeing that?
 
I have done a spreadsheet in excel to compare the value of buying versus renting [broken link removed]
 
If Irish buyers are looking for a good deal may I suggest the US, developers are ‘slashing’ prices. You can pick up a 2,000 sq ft detached with double garage and 4 bedrooms in Sacramento California for less than the price of a 2 bed flat in Dublin.

http://www.globaleconomicanalysis.blogspot.com/


PS nice Spread sheet Glendale
 
kane3000 said:
If you get the bank to buy you an average house of value €400,000 it will cost you €2000 a month for 25 years at 3.5% - so total cost is €600000.
Total cost charged by the bank for this service is €200,000.
So now you have a house that you own after 25 years.

Ok, so after 25 years of renting you have no asset - but you do have that extra €1000 a month that you have saved in Rabo bank at 3.2% interest by not paying the extra cost of the mortgage outlined above. This will yield you approximately €456000 after 25 years - enough hopefully to buy a nice house outright to retire in.
Click to expand...

three questions...

1) where is the €400k house you can rent for €1000 a month ?

2) how do I stop my rent going up in the next 25 years ?

3) what sort of house will €456k buy in 25 years ?
 
I'll need to look into the wage comparisons a bit further and find the data.

On areas, I agree it is very hard to do a comparison but Fulham and Chiswick are very accessible, family oriented redbrick areas with good schools. They are further away from the centre (30-40 mins by tube) than Ranelagh is, but London's centre is so much bigger that you cannot use geographic distance as a simple comparison. The nearest (nice) residential areas are always 30 mins at least from the centre in London.

I think what you can do is say "how much does a comparably sized home cost in a sought-after area with similar demographics" and that is what I based my analysis on.
 
Although one can never be certain, it is highly unlikely that you'll be able to buy anything in 25 years for 456k - it will probably represent a deposit and no more.

Property has a track record of doubling on average every 7-10 years. This track record is 2 centuries old. It includes downturns, recessions, wars and boom times. As long as people want a roof over their heads, property will be in demand.

Based on this, and assuming that a 3 bed semi in 1985 in a good area of Dublin was £50k, then in 25 years it should probably be valued at £1.2m or 1.5m euro. Their true value today is likely to be £200k or 250k euros as opposed to 450-500k they are selling at now.

There will be a correction - unfortunately I do not know when and it will be a great time to buy. So from that point of view, maybe kane3000 is on a winner with the rent for the moment.
 
Hi folks,

I would just like to clarify, my above post is just a representation - I know the figures are unrealistic and subject to variance - I am just trying to get a point across that I think that the interest portion of paying a mortgage is just as dead as rent money. I believe it is purely psychological that the nation choose to be blinkered by this and hence do whatever they can to 'buy' rather than rent hence driving up prices.

Cheers
Kane
 
Theo said:
Property has a track record of doubling on average every 7-10 years. This track record is 2 centuries old. It includes downturns, recessions, wars and boom times.
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Absolute nonsense.

Theo said:
As long as people want a roof over their heads, property will be in demand.
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Absolutely true, people need shelter. When this crash is done and the carnage wrought, they won't want to buy it with a ten-foot pole in this country.

Theo said:
There will be a correction - unfortunately I do not know when and it will be a great time to buy.
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The outcome of true crashes, like the one we're heading for, is that no one wants to buy XYZ ever again. Property will go wildly out of favour by the time the bottom of this crash is reached.

We will all pay dearly in terms of a wrecked economy for our stupidity.
 
Duplex said:
PS nice Spread sheet Glendale
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Is it not glaringly obvious that it assumes that rent will remain constant i.e. €11,700 pa throughout the 30 years?

Also, where can I get a return of 10.4% on my lump sum?
 
It also assumes that the property will appreciate at ana verage rate of 8% over the next 25 years which seems a little optomistic
 
I have done a spreadsheet in excel to compare the value of buying versus renting [broken link removed]
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Interesting, I think by using this, it becomes apparent that buying offers the better deal. This is because:
We need an annual return of 10% (as opposed to 8% on property) for each of the next 30yrs to make rent the better option. The calculator takes no account of CGT or income tax effects on the fund value, the assumption is that 130K is available to invest from Day 1, this is a major determinant on the end fund value and IMO there are not many people who have a 26% deposit to put down on their purchases.

All that said, maybe sitting it out renting for a couple of years is the best option at present, I don't know, i prefer to buy anyway - sure it's only money!
 
Imagine it is February 21 2010, what do you think the current property market will be like - what do you think the major headlines will have been in terms of Irish property since 2006 ?
 
walk2dewater said:
Absolute nonsense.

What is nonsense? The comment about doubling in value every 7-10 years? Or the comment about that record based on 2 centuries?

If its the first, this comment is backed up by no less than Warren Buffett himself who invested in McDonalds for precisely that reason. He rightly saw McDonald's as a property play. I don't believe Buffett is a non-sensical investor.

If its the second, well, the record speaks for itself. Its simply fact.


And the best time to buy property will be when everyone else is running away scared. I do not agree that this will spell the end of the property market in Ireland or anywhere for that matter - time always heals the emotional scars and greed sets in again. This happens with shares as well as property. The best time to buy shares in recent times was March 2003, just at the outbreak of the Iraq war. The DOW was at 7500 - it recently broke 11000. Unfortunately , the herd ran away scared (including pension funds) and of course they're now coming back with greed in their eyes.

No-one's fault, it's just human nature and the world (as far as successful investing goes) belongs to those who can read and predict it.
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