Future price of Irish properties
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Loki said:
It interests me greatly that this myth is so persistent and that most people committing themselves to responsibility for paying off huge sums ("mortgages") seem unable to understand a basic fact of life. It is this. If a person wants/desires/needs 'something' (lets say 'a property') and has no money with which to buy it s(he) can at an additional cost ("interest") use someone else's money short-term to acquire the object of desire.
To be even more explicit, if I take a mortgage today to purchase a 400K house and next year sell that house on for 500K my profit IS NOT 100K!!! It is not a matter of whether people want a home or 'an investment'; it is more fundamental. Individuals who have not taken the time to really look into the way this particular market operates (for that is what it is!) will be disappointed when their anticipated "profit" of 100K begins to shrink when they deduct a long list of items - cost of purchasing, cost of selling, cost of renovating, cost of insuring, cost of securing, cost of maintenance, cost of taxes, COST OF INTEREST for the term of ownership and the last but not least 'deduction' - percentage rise in cost of not only this, but ALL OTHER PROPERTY!At that stage the punter says "Ah shure I'll do it all myself and settle the tax-bill in a few years. Then it's all clear profit. Then what is not figured into the equation are the many many hours of work involved in owning, managing and maintaining a structure.
What a number of contributors above have said which is not really being picked up is that there is a 'myth' that Ireland has at long last followed the leprechaun to the end of the rainbow and found a great big sack of houses all made of gold. Fairytales of treasure and wealth at rainbow's end were moral tales warning of self-deception laziness and greed and pointers to the reality that life is struggle, resources are scarce and all we can be certain of are death and taxes.
Great post Marie.Marie said:
Lots of investors have been tempted by 5 - 10 year interest only mortgages on the basis that the property is obviously going to be worth more by then.
Apparently we here in Ireland have very special houses - they're the only ones in the world that can't devalue! In fact, of all the potential areas an investor could put their money, Irish property is the one, the only one, that's a sure fire bet.
askalot said:
Well said, if you were to pick up a copy of our broadsheets you would swear that property is a one way bet. How come our media are quick to print when someone makes a killing on a property but there is hardly a mention of any investors who were finding it difficult to meet their repayments when the ECB rate was at 2%.
Marie said:
Yes, good post Marie, but I felt you lost the run of yourself a little at the end
! We are one of the richest countries in the World so I don't think we can complain too much compared to the 90% of the planet in infinitely poorer circumstances. On the broader issue of whether we are squandering our new found wealth, I like this article from the IMF.
http://www.imf.org/external/pubs/ft/fandd/2003/03/ebra.htm
It posits that asset bubbles will replace currency appreciation in areas experiencing a sudden localised inflow of wealth where they share a common currency with other poorer regions.
It covers the transfer of wealth from productive to non-productive sectors and the hollowing out of the manufacturing base and seeks to provide some general macroeconomic remedies.
Sound familiar?
The new found wealth in our case is not Dutch oil or Spanish gold but the F.D.I from the US etc, and the loose lending practices of the banks.
We are spending our future wealth now in one big unproductive binge.
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Chamar
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askalot said:
That's the part I can't fathom. In truth none of us know where property prices are going to go but I just don't understand why there is this belief that Irish property is some sort of special case & that people seem unable to acknowledge that property as an asset class can fall. Just as it did in Germany, Japan, Boston etc - more mature economies than ours.
bearishbull
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gearoid said:
lots of economic commentators/media say this but in reality we have a high GDP per capita for last decade or less,many countries like uk usa germany etc have had high GDP for decades/centuries! its like saying you are rich because you have a high salary say 100k,if your spending most of your salary on consumer goods and on inflated house prices it doesnt make you rich. rich countries have high quality infrastructure and investments in productive assets shares etc. if we have this level of GDP per capita for decades then we will be rich,yes our income(gdp) is high at present but its only been for a few years so far.
Couldn't agree more. Ireland is exhibiting classic "nouveau riche" behaviour - all our income seems to be going into cars, houses and expensive holidays. And borrowing. It seems the "richer" we are, the more debt we're prepared to take on. Hopefully we will eventually develop the vision to create an infrastructure that future generations will be proud of. Think of the vision that created the Brooklyn Bridge or the London Underground. So far we've got a couple of pedestrian bridges and a few miles of tram tracks (replacing a much smaller system than we ripped up only, what, 30-odd years ago?)
I've long felt that in years to come we'll look back on this as "the wasted years" where surplus upon surplus was pissed down the drain with little or nothing to show for it in the long term.
A genuine scandal in my honest opinion but we, the voting public, have only ourselves to blame in the end of the day.
Preposterious house prices included my better half and I see more and more reason to look further afield for our future lives and i don't think we're alone.
A genuine scandal in my honest opinion but we, the voting public, have only ourselves to blame in the end of the day.
Preposterious house prices included my better half and I see more and more reason to look further afield for our future lives and i don't think we're alone.
bearishbull
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agreed , when i have enough i'll move abroad to a country with better weather lifestyle etc and buy a home outright and work little!!!Eurofan said:
While I'm sure that some people are doing this I'm not so sure that most are. If you have any hard evidence to the contrary though I'd be glad to read it.extopia said:
I don't hold with the pessimistic outlook/analysis outlined in the previous two posts to be honest.
bearishbull
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ClubMan said:
we are spending our income(as a nation)to a great extent on expensive houses and imported cars clothes holidays etc which are all unproductive.construction is a massive element of irish economy and as david mc williams points out today any slowdown there has a negative multiplier effect throughout the economy,combined with the slowdown in consumer spending by consumers who feel less wealthy as house price rises slow or fall and you have problems.
the multinationals wont be here forever and we dont have any great indigenous companies or industries competing on world stage to keep the party going.
basically we're spending too much on living now and consuming and not invested in the long term productivity of the economy through increased spending on r&d education and development or irish companies that can compete on world markets .
do we just wanna be a tax haven for multinationals and one big construction site?
bearishbull said:
I agree and don't understand how the criticism of 'negativity' can be levelled at a perspective which recognises the reality of an economy where present everyday existence - including a place in which to exist! - is already costing future labour (the mortgage mechanism). To make that clearer, perhaps the language needs to change slightly and "I/we bought a house in 2001" etc. changed to "I/we bought a mortgage etc." The real 'cost' then comes into view. Eventual home ownership depends on a raft of other economic factors, including continuing employment, artificially-low interest-rates and rate at which inflation in cost of other goods and services - such as utilities - increases.
There are dangers in the situation where - as earlier posters point out - conspicuous-consumption 'life-style' ("We're RICH - RICH I tell you!") floats without strong moorings in some secure production base. Is it not an anomaly that property is the prize and goal when the construction industry is the production base? Seems a bit circular and dangerous to some observers including myself.
Davy's put the Irish savings rate at 15%. This is very high relative to other countries with real estate booms(UK, US, Australia) and would suggest that there is a cushion that could be tapped if interest rates rose significantly. A crash seems unlikely more like a long period of flat prices in real terms.
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bearishbull
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that savings rate is high partly because of the ssia's and need to save for alarge mortgage deposit, lets see what the saving rate is like in 2007/8. i think theres a lot of older people that save a lot but most young people i know save little ,with priavte sector credit growing at 30% per annum and due to hit 400billion in next two years savings will decrease.tyoung said:
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thewatcher
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tyoung said:
I would contend that in general the over 40's have money coming out their ears and the over 20's soon enough won't have a pot to piss in.There will be major repercussions for the economy if this is not addressed in the future .
It certainly will if large numbers of the latter decide to up sticks and seek greener pastures elsewhere. Seeing as the expanded EU is available nowadays the options are a great deal wider than the UK/USA of old.thewatcher said:
To keep things on topic i know of no-one recently who would have bought without the expectation of double digit property growth that will permit them to then trade-up in a few years.
I'd love to see a survey done on what percentage of the under 30s who've bought with the intention of doing just that.
The ingrained notion in many Irish that property is a never-ending 'wealth creator' is the biggest problem. When that stalls(never mind crashes) the sudden realisation that you can't afford to move out of the crappy starter home you told yourself you'd have made €50k on by now will sharply bring the reality of 30 and 35 year mortgages to the fore.
Something interesting I noticed yesterday, I picked up both the Sunday Business Post & Sunday Tribune. In fairness to the SBP it had at least four articles that were bear-ish in the area of house prices/reliance of economy on a single sector - construction/the irish addiction to credit. The Tribune had zip, in fact most of it's 'business' section was propertybeattie said:
Not that the SBP are entirely trustworthy - last week they ran a large piece on the probable effects of interest rate increases and two of the 'economists' were from estate agents (!!) and one from a mortgage bank
You misunderstood what I said and then descirbed a particular slanted view. If you invest into a pension scheme you are risking your future on the markets. Instead of doing that you put the money into a house even with the asset floating on the wave of inflation and other factors rent would generally stay inline with inflation giving a good return. Each rent check is income and a return and then there is also the appreciation of the property. Over a long period of time 20-30 property generally goes up , not for sure but compared to most things pretty good. Some people buy a smaller house close to services they think they will need in old age and rented it untill they decide to down size and then rent the bigger family house. Not everybody can do things like this but in the right locations. So say if you get a mortgage for an investment poperty even if you subsidise the rent for say €200 a month (i.e. 5% of your income) if you bought a few years ago your current mortgage so your current mortgage is €600 a month (15%) now somebody (same income)who buys now might take pay €1000 (25%) for his house. Now if that is 20% income on 2 houses vs 25% income 1 house. Now if the market crashes the first guy is still in better shape. So some of this talk of investors panicing why would they? Say if they can't rent as people say you can lower rents and still be doing better than the 2nd guy. If you buy the right property you should be sheltered. After 20 years the 1st guy can borrow on the equity of his investment to pay of his mortgage and get extra rent relief on his rental property. Eventually the mortgages are gone 1st guy has had an extra 5% all his life and a rental proeprty for a pension plus the same as the other guy and maybe more.Marie said:
There are places where this can fail certainly but over the long period property has a tendencey to go up in the same way they have a tendency to cycle through highs and lows.
I think you should have explained what you think the profit is then did all those costs go over €10k. Obviously there are costs but effectively €100k is profit in simple terms if it is an investment property but your home is only different if you can plan to buy in the same market. People move,downsize etc... so it can be profit. Certain parts of the market rise quicker than others so if you time it right you can win.Marie said:
I'd guess you don't own an investement property and I 'd guess you might not own at all. What you have said is not untrue but you are only looking at one small element of the market. The population is aging so the older people are looking at their futures in a different way. I get the belief in people being lazy and looking to get rich quickly through little work but using your money wisely is just smart. Some people are calculating thier risks and deciding what is best for them. Some will do it wrong and win anyway some will do it right and get it wrong or vise versus. It doesn't make them money grabing are lazy. I think you are being a bit too self righteous considering it is all speculation and you don't really know the intent of everybody.
There are a lot of people here who want prices to go down here but they appear to only have one view of the market. It is a really complex and forever changing.
Loki this is the point that myself & others on this board would like to make to property speculators in this country. The problem is that the vast majority do not see this and are spoon fed the notion of the one way property bet.Loki said:
Yes there are savvy property investors out there who know the game and are playing it well but they really are in the minority - the stats of 42% of 'investors' owning only one investment property and only 64% currently covering their costs thru rent are testament to that.
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