Future price of Irish properties

[Duplex]

I can’t see any evidence of a shortage of housing in Ireland. If there were a shortage rents would be rising, but rents are actually falling (in real terms) and that’s in the face of record short term guest worker demand.

What I find amazing about this unsustainable bubble is the banks short term view, they know that the bubble is unsustainable and that their super normal profits are equally untenable even in the medium term; yet they continue to lend money in a high risk market. I appreciate that much of the risk is securitised and spun off but the head honchos surly know that trees don’t grow to the sky.

My reading of the situation is that the guys with their hands on the easy credit taps are pretty much all short timers with one eye on the golden clock and their winters playing golf in Spain (or Cape Verde even). So when the train hits the buffers its going to be on someone else’s watch.

I don’t see a soft landing this year my guess is that Euro rates won’t rise much above 3%-3.5% (the prospects of a yield curve inversion in the Euro Bond market are increasing). I can still see 15%+ rises this year and that should be sufficient to bring the country to the brink of debt induced demand destruction.

You really have to view Irish property prices from the prospective of a Chinesse/Indian/Indonisian/Brazilian/E. European production line worker, they could tell you a thing or two about the value of money.

 

[Neffa]

Just saw this [broken link removed]

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Investors increase property stakes
24/02/2006 - 14:26:55

A new survey conducted by EBS Building Society and estate agents Gunne Residential shows that 63% of property investors intend to increase their bricks and mortar portfolio within the next five years.

The survey revealed that 80% of respondents invested in property because they believe it is a safer option than other forms of investment.

The research was conducted among 200 property investors, with 41% of respondents owning one investment property, 26% owning two and 22% owning four or more. Some 73% of respondents said they invested in property to provide a pension for themselves.

[broken link removed]​

Some 14% of respondents bought their property in Dublin city centre, 34% in the rest of Leinster, 24% bought in Munster, 17% in Connacht or Ulster, 10% elsewhere in Europe.

Of those questioned, 64% said that the rents they receive are adequate to cover their expenses.

About one third have also invested 10,000 or more into a private pension scheme and 28% in stocks and shares.

Ms Dara Deering, head of mortgages at EBS Building, told The Evening Echo: “There is a high level of confidence among property investors.”

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I find the contradition in this article simply reinforces the gap between expectations and underlying trends. There is a high level of confidence amongst investors but 36% of investors are already not covering their expenses, and still they say property is a safe investment. What on earth will they do if/when interest rates rise? Unless you have incredibly deep pockets, you cannot "hold out" forever if the market goes against you.

 

[Glenbhoy]

Neffa:
OK - just checked on this - the UK's average house price in Jan reported by Nationwide (largest UK Building Society) was £158K. Your earnings figure is roughly right - it is about £23K so that makes the ratio 6.9. Source: UK CSO and the Nationwide data is at [broken link removed]

Neffa, justt found where I got my figures from - got to say I always trust the beeb!!
http://news.bbc.co.uk/1/shared/spl/hi/in_depth/uk_house_prices/html/houses.stm

All these stats are a bit irrelevant anyway, and sure the fact there's so much variance means they all have to be taken with a pinch of salt!

 

[beattie]

I find the contradition in this article simply reinforces the gap between expectations and underlying trends. There is a high level of confidence amongst investors but 36% of investors are already not covering their expenses, and still they say property is a safe investment. What on earth will they do if/when interest rates rise? Unless you have incredibly deep pockets, you cannot "hold out" forever if the market goes against you.

Agree that it is worrying that 36% of investors are unable to cover expenses at such low repayment levels but there is still a high number of relatively young investors who have never experienced even moderate rates. I do not believe that a 'get out clause' of higher rents will suffice in future as with 80k+ units coming onstream every year for the next 3-4 years rents will at best stagnate in real terms and will probably fall. I expect vacancy times will increase (especially beyond the Pale) further eroding yields. The real question IMO is what ECB rate will cause would be investors to pause.

Also is there any figures on loan defaults on buy to let mortages. It seems that you can get this sort of information from the papers in the UK from time to time but alas our media never seems to uncover negative information about the property market.

 

[askalot]

Just saw this
Ms Dara Deering, head of mortgages at EBS Building, told The Evening Echo: “There is a high level of confidence among property investors.”

Is that the same high level of confidence as displayed by investors a few years ago as they piled into tech stocks? Surely the lesson from the bursting of that bubble is that eventually fundamentals will come into play and correct the market.

The housing market is different to the stock market in that there are no quarterly results to spook investors, unless you count the various market reports by vested interests like banks, building societies and estate agents. All seems a bit Enron-like for my taste!

 

[sandycove]

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.

Neffa,

I don't think that you are drawing a fair comparison. A friend of mine recently bought 3500sq ft house in Ranelagh for €2.8million in Ranelagh. His sister purchased a 2200sq ft house in Earls Court 8 years ago for £1.5 million. Relative to the overall size of the cities, Ranelagh and Earls Court are equidistant from the centre of the city.

 

[dam099]

Neffa,

I don't think that you are drawing a fair comparison. A friend of mine recently bought 3500sq ft house in Ranelagh for €2.8million in Ranelagh. His sister purchased a 2200sq ft house in Earls Court 8 years ago for £1.5 million. Relative to the overall size of the cities, Ranelagh and Earls Court are equidistant from the centre of the city.

I don't know that 2 houses of totally different sizes purchased 8 years apart is of any use as a comparison either.

 

[Neffa]

Neffa,

I don't think that you are drawing a fair comparison. A friend of mine recently bought 3500sq ft house in Ranelagh for €2.8million in Ranelagh. His sister purchased a 2200sq ft house in Earls Court 8 years ago for £1.5 million. Relative to the overall size of the cities, Ranelagh and Earls Court are equidistant from the centre of the city.

Not sure what to make of this - it is hard to do a comparison 8 years apart! In 1998 (i.e. 8 years ago) - 2000 sqft houses were selling in Richmond/ Chiswick/ Fulham/ Islington etc. for about £600K then so it must be an extraordinary house and be worth upwards of £3m (London more or less doubled in the last eight years, even after the 10% fall in 2005-06).

I don't think it is about the distance from the centre, it is about aspirational/upmarket places to live and how much they cost. Dublin does appear to be more expensive for a mid-sized family house amd the rental values trail the mortgage payments significantly.

For instance, look what €1m would buy in Fulham - a very upmarket London area: Bear in mind this is the real price, not an AMV or Guide:

http://www.findaproperty.com/agent.aspx?agentid=0236&opt=prop&pid=394498

Or in Chiswick:

http://www.findaproperty.com/agent.aspx?agentid=4817&opt=prop&pid=314071&photo=3#photo

Would you get something remotely comparable in Dublin for a similar sum?

 

[Amygdala]

I am going to try to dip my toe in this very heated debate..... firstly Loki your suggesion that 3 bed semi D's will be divided into 2 or more independent units is hard to see. If you are drawing a parallel between these and for example Georgian Houses, I believe these to be fundamentally different for too many reasons...such as structurely and with mordern building regulations/standards. But I do understand your arguments with regards to the changing social issues, but they are also based on on a non-responsive govermental policy. I also understand the pro-bubble arguments, but also believe that the markets are learning from previous crashes so that the past precipitating factors are widely studied and therefore can be avoided and so growth maybe sustained in the short to medium future .
I suppose the net result of this post is non-contributary but one of complete besumement at something that can not be modelled and only explained after the event has occured.
And when i graduate in the summer as a doctor in dublin and faced with predicted increases of 8% over the period it would take my girlfriend and I to save for a deposit( 100% mortgage is never a good idea), I will most likely emmigrate out of exasperation, rather than be someone who can not recognise worth as opposed to previous definitions of value that depend on irrationality of buyers.

( I realise that this post smacks of sour grapes of a person who missed the last "definite" boat to some, but this sentiment could signal the next reason to leave Ireland.)

 

[extopia]

Well if doctors can't afford to buy houses then property is definitely overvalued. Case closed!

 

[bankrupt]

Well if doctors can't afford to buy houses then property is definitely overvalued. Case closed!

Amen to that!

This is exactly the point - the very people who should be most encouraged to stay in the country are being squeezed.

It seems to me that if you think the status quo is acceptable then you do not appreciate the damage that we are inflicting upon ourselves. Regardless of whether you think there will be a "soft landing" or not, the fact is that the current situation penalises our most important asset, our educated workforce.

Looks like we should all become builders, nothing else is worth a damn.

 

[askalot]

Well if doctors can't afford to buy houses then property is definitely overvalued. Case closed!

Yep. We'll be a nation of builders and landlords!

 

[Glenbhoy]

they know that the bubble is unsustainable and that their super normal profits

Supernormal profits mean supernormal bonuses!!

 

[Marie]

Duplex writes: "What I find amazing about this unsustainable bubble is the banks short term view, they know that the bubble is unsustainable and that their super normal profits are equally untenable even in the medium term; yet they continue to lend money in a high risk market. I appreciate that much of the risk is securitised and spun off but the head honchos surly know that trees don’t grow to the sky.

My reading of the situation is that the guys with their hands on the easy credit taps are pretty much all short timers with one eye on the golden clock and their winters playing golf in Spain (or Cape Verde even). So when the train hits the buffers its going to be on someone else’s watch."

I read in my newspaper today (The Guardian) that here in the UK because first-time buyers have virtually given up trying to get onto the property ladder (and we are talking about a situation where it's been a 'buyer's market' for the past 18 months!!!) banks and financial institutions are changing their loan criteria to stimulate the 'buy to let' market which was virtually dead in the water by raising the amount they will loan to speculators from 2million sterling to 10 million sterling and raising the allowed number of properties they will fund - from 2 to 10. Younger members of my family who had lived abroad for years returned to Ireland recently anticipating property-prices had peaked and would shortly become sufficiently 'real' for them to purchase. I think if the Irish property market follows the trajectory of the UK (and there is no reason it will not - it's globalising capitalism we're talking about here!) that is unlikely and I agree with the trainee medic and the above posters on the profound damage this will cause in the medium/long term to the social fabric.

 

[beattie]

If the government was serious about tackling this issue they could do two immediate things which would lead to a more socially cohesive situation.
A) Introduce taxes with respect to land hoarding in areas which have been zoned residential, that would increae supply.
B) Reintroduce the extra stamp duty taxes on investors that were present for a year about 4-5 five years ago.

I doubt that either of these measures will be introduced by the present government and I would also doubt that a FG/Lab coalition would do so either IMHO

 

[askalot]

If the government was serious about tackling this issue they could do two immediate things which would lead to a more socially cohesive situation.
A) Introduce taxes with respect to land hoarding in areas which have been zoned residential, that would increae supply.

Really? In the past we did have a supply problem but that is not the case now. There are plenty of really badly designed and badly built one and two bedroom apartments for ftbs and 'investors'.

B) Reintroduce the extra stamp duty taxes on investors that were present for a year about 4-5 five years ago.

I agree but I don't see any of the political parties having the courage to do this.

 

[Loki]

I am going to try to dip my toe in this very heated debate..... firstly Loki your suggesion that 3 bed semi D's will be divided into 2 or more independent units is hard to see. If you are drawing a parallel between these and for example Georgian Houses, I believe these to be fundamentally different for too many reasons...such as structurely and with mordern building regulations/standards. But I do understand your arguments with regards to the changing social issues, but they are also based on on a non-responsive govermental policy.

I used georgian houses as an example. Go to London and look at the vitorian estates. Some are close to a complete split in every house. IT just happens to be house stock in the location. This isn't so much a theory as a reality happening now. 7 on my road alone from a house built in the 50s. Are big property build prior to the current was the 70-80s and these houses are being changed . All the corner sites are being used, back gardens are being built on. Georgian houses are hugely different but that isn't the point the point is people didn't think there way of life would change so radically.
People here are focusing on economics and the construction industry (mostly the economics of it) and not property. I think if you are going to talk property prices you need to talk about property stock and who uses it.
You people buying a house will be a sacrifice this society will make. Ireland has the highest home ownsership in the world the next is Italy yet they have a falling population size. I can see this giving before house prices as that is the super annomoly not the price. People here are making the assumption people must buy. The gloabalisation aspects of our economy seem to be ignored in the property section except for the economic effects.

All the property baddly built now may mean people will dismiss owning property built after 2001. Then supply and demand may change. I beleive it will be congestion that will effect the market. Many areas are so far away that public transport will be unviable kids raised in cars will not be will to commute long distances.

As for the ability for a dcotor to buy a property straight out of college. Look around the world and be amazed that in other countries this is also the case and they have not collapsed. Look at TV and see how many people rent why is this relevant ? It would be so unrealistic to have them afford a house that even in situation comedies they won't streach that far. Scrubs have them still renting and they are fully qualified. As for taking the free education and then leaving, you won't get you much sympathy from me. I can see why you would do it and that stopping you going is in our best interest but I don't use it as a gauge for property prices.

 

[extopia]

When you talk about houses being "split" do you mean development of the site (e.g. more buildings in the garden) or subdivision of the house itself? There's no doubt about the former, but I see little or no evidence of suburban semi-D's being turned into two family houses, at least not officially. Bedsits, maybe, but "apartments"?

 

[gearoidmm]

Interesting article in one of the Sunday papers yesterday (sorry, can't remember which one) saying that AIB are beginning to be concerned that perhaps their loose lending practices may have contributed to the rise in property prices and that it may be unsustainable!

On the other side of things, the Sunday Independent reported that a house in Blackrock was sold last March for E850,000 and had sale agreed last week for E1.43 million. Now they didn't mention whether or not any work had been done to improve the house but that seems unbelievable.

 

[Calina]

Intereesting article in one of the Sunday papers yesterday (sorry, can't remember which one) saying that AIB are beginning to be concerned that perhaps their loose lending practices may have contributed to the rise in property prices and that it may be unsustainable!

Sorry I missed that. I had a dust up with the mortgage guy in my local AIB sometime ago because he basically said they wouldn't introduce 100% mortgages because he felt they'd only serve to drive up prices - I told him that actually, I didn't think that was the bigger problem, the rot went back to when they started loosening the salary multiples. He actually agreed with me, somewhat reluctantly, I felt.