Future price of Irish properties

[Neffa]

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.

...as you are with property - it is not different - you are risking your future on property prices, inflation, interest rates etc. etc.

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.

And what about the interest rates of the underlying loan. Marie made a great point - people take on a mortgage rather than buy a property so the behaviour of the interest rate is as important as the asset price.

Let's look at the effect of a 1.5% rise in interest rates (a possible net effect over the next 18 months) would have:

€350K interest only mortgage at 3.35%/month = 980
€350K interest only mortgage at 4.85%/month = 1410

Increase of 43.8% in outgoings - not sure that an inflationary rent increase would cover this!

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.

Yes, if you managed to buy some time ago when things were cheaper, then your mortgage is lower and you are less exposed. You are in fact making the exact point which I and others have made in earlier posts - anyone buying now as an "investment" has to have a very careful look at what they are taking on because the market is expensive. People who bought 5+ years ago are in a better position. However, my sense is that many who bought 5+years ago have remained active in the investor market and have continued to buy so at least some of their portfolio is heavily exposed.

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.
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.

A lower rent means the potential for a bigger loss every month. This will dampen the demand for investor property and will in turn dampen price growth. Investors will panic because their "one way bet" will go sour and they will suddenly feel much less positive that the capital appreciation will offset the rental gap per month. Bear in mind that the rental gap is real cash which must be paid, but the capital appreciation can only be obtained if you sell - and if a number of people choose to sell at similar times because they face the same situation - then that will induce a fall.

Loki - you may have the benefit of a number of investment properties bought years ago which have low mortages and you are making a profit every month - good for you. If 40% of new builds are going to investors today, then the last 3 years must have seen a substantial number of investors enter the market at relatively high valuations. They will certainly have problems given the interest rate calculation above - you may not, so good luck to you.

 

[redo]

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.

Yes, this is the biggest danger to the first time buyers.

 

[Loki]

...as you are with property - it is not different - you are risking your future on property prices, inflation, interest rates etc. etc.

That was my point to an extent. If you have the money putting into a house or a pension there are risks the difference is rent will stay more inline with inflation while other investment returns have a finite return generally.

And what about the interest rates of the underlying loan. Marie made a great point - people take on a mortgage rather than buy a property so the behaviour of the interest rate is as important as the asset price.

Let's look at the effect of a 1.5% rise in interest rates (a possible net effect over the next 18 months) would have: etc....

You made more than an assumption here. You don't havce to buy an investment property with an interest only mortgage. IN fact I suggested a regular mortgage as I said the investor would own the 2 nd property not the profit.

Yes, if you managed to buy some time ago when things were cheaper, then your mortgage is lower and you are less exposed. You are in fact making the exact point which I and others have made in earlier posts - anyone buying now as an "investment" has to have a very careful look at what they are taking on because the market is expensive. People who bought 5+ years ago are in a better position. However, my sense is that many who bought 5+years ago have remained active in the investor market and have continued to buy so at least some of their portfolio is heavily exposed.

Your assumption of interest only mortgage effects everything else you are saying. An investment property for many people is still very reachable as I said. You are assuming people have no nest eggs too. You know some people bought 10 years ago so the risk to them is very low. It is is all still very easy for many people in the market. THe idea is you own a 2nd house that rental income provides a pension. I can't remember but in a recent study of new investors was it 40% siad pension investment?

A lower rent means the potential for a bigger loss every month. This will dampen the demand for investor property and will in turn dampen price growth. Investors will panic because their "one way bet" will go sour and they will suddenly feel much less positive that the capital appreciation will offset the rental gap per month.

You know you should address your language as unless you can tell the future you are speculating . You are extremely negative on further price rises which is fine but stop stating your views as what is going to happen. You are extremely dismiss of any explanation or thinking for a price rise and you force intent on why people are doing things. Try thinking long term and with an open mind. The only people ever caught off gaurd are those who refuse to listen to ALL the details and think they know what is going to happen.

Loki - you may have the benefit of a number of investment properties bought years ago which have low mortages and you are making a profit every month - good for you. If 40% of new builds are going to investors today, then the last 3 years must have seen a substantial number of investors enter the market at relatively high valuations. They will certainly have problems given the interest rate calculation above - you may not, so good luck to you.

what you ignored was my figure and used your own choice of what I was suggesting and then made up other figures to boalster your view. 43% increase in costs, just vails the way I described it. What new portion of the salary is that plus you relied on it being interest only.
I can't remember are you wishing to buy at some point or just generally just against the principle that house prices could go up?

You do understand that you don't know what is going to happen and what is a big risk for some people now is equally not much of a risk to others due to circumstances?

 

[redo]

That was my point to an extent. If you have the money putting into a house or a pension there are risks.


You made more than an assumption here. You don't havce to buy an investment property with an interest only mortgage. IN fact I suggested a regular mortgage as I said the investor would own the 2 nd property not the profit.
Your assumption of interest only mortgage effects everything else you are saying. An investment property for many people is still very reachable as I said. You are assuming people have no nest eggs too. You know some people bought 10 years ago so the risk to them is very low. It is is all still very easy for many people in the market. THe idea is you own a 2nd house that rental income provides a pension. I can't remember but in a recent study of new investors was it 40% siad pension investment?



You know you should address your language as unless you can tell the future you are speculating . You are extremely negative on further price rises which is fine but stop stating your views as what is going to happen. You are extremely dismiss of any explanation or thinking for a price rise and you force intent on why people are doing things. Try thinking long term and with an open mind. The only people ever caught off gaurd are those who refuse to listen to ALL the details and think they know what is going to happen.
what you ignored was my figure and used your own choice of what I was suggesting and then made up other figures to boalster your view. 43% increase in costs, just vails the way I described it. What new portion of the salary is that plus you relied on it being interest only.
I can't remember are you wishing to buy at some point or just generally just against the principle that house prices could go up?

You do understand that you don't know what is going to happen and what is a big risk for some people now is equally not much of a risk to others due to circumstances?

If the demand for houses as investments falls, the relative price of will fall. This is economic fact. If you throw an apple in the air it will fall, unless our sun explodes and destroys the earth, but I can't be sure, as it is in the furture.

 

[Neffa]

You made more than an assumption here. You don't havce to buy an investment property with an interest only mortgage.

No, you don't have to, but I challenge you to show anyone on this board a house which you could buy in the Dublin area/commuter belt at the present time where you could cover the rent through a normal repayment mortgage. Post the link to the sale advertisement with the price and the Daft.ie (or other source) proving the rent. The Irish Times have looked at the "investment case" for numerous houses in their supplement and they have to use an interest-only mortgage for any kind of positive yield.

You know you should address your language as unless you can tell the future you are speculating . You are extremely negative on further price rises which is fine but stop stating your views as what is going to happen. You are extremely dismiss of any explanation or thinking for a price rise and you force intent on why people are doing things. Try thinking long term and with an open mind. The only people ever caught off gaurd are those who refuse to listen to ALL the details and think they know what is going to happen.

I've backed up my *opinions* with a wealth of data, so I feel entitled to say what will happen. I cannot be sure of anything, nor can you, but I can present my logic and conclusions. Otherwise there would be no point in debating anything. I think I have logic and data to explain why I don't think certain arguments hold water.

I can't remember are you wishing to buy at some point or just generally just against the principle that house prices could go up?

I own property in the UK and in Ireland. I will buy again in the future, but only if I think it is a good time to do so and I hope it is abundantly clear that I think it is not at present as I think current prices and the expectations driving them are inflated. My properties are rented and I am renting in Dublin now, sitting on a cashpile waiting for a better chance to buy.

 

[askalot]

THe idea is you own a 2nd house that rental income provides a pension. I can't remember but in a recent study of new investors was it 40% siad pension investment?

How many people will want to deal with tenants and the up keep of the property when they reach their late seventies? Not many hence we will see a glut of property on the market and that's going to drive prices down.

New 'investors' who think one investment property will provide a good pension may end up being disappointed. Any sort of pension with 20 years contributions would beat the return from one or two properties. This year the average managed fund saw 20 - 23 per cent growth. Over the past six years they've averaged 5 - 6 per cent and that is during a slump in the market.

You'll notice how there is less hype about the great return on pensions over the last couple of years - this is because they are regulated and have to paint a true picture of risk/reward to the investor. This is in stark contrast to estate agents and their 'economists'.

 

[owenm]

is it reasonable to assume large volumes of people bought investment properties with interest only mortgages and that the bank will only allow this for the medium term ( up to 6 years)
. If so what happens when these have to be converted to normal mortgages and the yield turns negative, will we see substantial numbers of them turning negative at each interest rate increase?

 

[Loki]

If the demand for houses as investments falls, the relative price of will fall. This is economic fact. If you throw an apple in the air it will fall, unless our sun explodes and destroys the earth, but I can't be sure, as it is in the furture.

Yes but of course you are speculating that the investors are the reason for the current high price and that they will stop investing. It is not an inevitability like gravity.

No, you don't have to, but I challenge you to show anyone on this board a house which you could buy in the Dublin area/commuter belt at the present time where you could cover the rent through a normal repayment mortgage. Post the link to the sale advertisement with the price and the Daft.ie (or other source) proving the rent. The Irish Times have looked at the "investment case" for numerous houses in their supplement and they have to use an interest-only mortgage for any kind of positive yield.

THere are you just need to know what you are doing as an investor. Buy a house and convert it into seperate places and extend and you could get your mortgage payments and more. It is worth buying a hotel and a shjopping chain to do similar on a bigger scale. The other point which is the one I have been making is it doesn't have to to be a good investment in the long term. THis is common economic practice in all types of market to buy a loss making item on speculation of the long term. What the media say is opinion based on opinion know the facts yourself.

I've backed up my *opinions* with a wealth of data, so I feel entitled to say what will happen. I cannot be sure of anything, nor can you, but I can present my logic and conclusions. Otherwise there would be no point in debating anything. I think I have logic and data to explain why I don't think certain arguments hold water.

I can back my opinion with the bible but it doesn't make God real. It is belief . You aren't presenting logic you are stating opinion as fact. As I said I suggest you reajust your language. I can use your data to prove my opinion are just poke holes in how it is not accurate. You have made your choices based on your opinion so I can see why you would be affraid to listen to other views.

I own property in the UK and in Ireland. I will buy again in the future, but only if I think it is a good time to do so and I hope it is abundantly clear that I think it is not at present as I think current prices and the expectations driving them are inflated. My properties are rented and I am renting in Dublin now, sitting on a cashpile waiting for a better chance to buy.

Sitting on cash is certainly considered a bad idea in the current market. In fact if you are sitting on cash and are wrong you would loose value. I guess it would be pretty hard to face the idea that you might be wrong and that you lost money by not listening to people. Taking an a risk and loosing is one thing but to loose money through inaction sounds more unplesant.

If buying property,think long term and add value. Don't buy property and hope you are doing the right thing but be sure that you have no control over what happens.

 

[Loki]

How many people will want to deal with tenants and the up keep of the property when they reach their late seventies? Not many hence we will see a glut of property on the market and that's going to drive prices down.

New 'investors' who think one investment property will provide a good pension may end up being disappointed. Any sort of pension with 20 years contributions would beat the return from one or two properties. This year the average managed fund saw 20 - 23 per cent growth. Over the past six years they've averaged 5 - 6 per cent and that is during a slump in the market.

You'll notice how there is less hype about the great return on pensions over the last couple of years - this is because they are regulated and have to paint a true picture of risk/reward to the investor. This is in stark contrast to estate agents and their 'economists'.

There are management companies you can hire and some people have children who take these things on as it is their pension plan too. It is actually how a lot of property is moved around. Family proeprty isn't always home.

A pension fund invested in by your average person set up 30 years ago would certainly give you less than a house. Plus the rent was well over the the mortgage as time went on. I used an example a situation where things remained relatively constant. The truth is money changes value. €200 could easily move from 5% to 1% or less of your income. At some point you are likely to get a profit before you pay off the mortgage.
What has the average pension fund increase been in the last 10 years or even 5? Are they close to property?

is it reasonable to assume large volumes of people bought investment properties with interest only mortgages and that the bank will only allow this for the medium term ( up to 6 years)
. If so what happens when these have to be converted to normal mortgages and the yield turns negative, will we see substantial numbers of them turning negative at each interest rate increase?

Why? What do you know that makes you able to say that? I think it is reasonable to believe people won't panic sell property. You are wrong on the mortgages as you can get them for 10 years so I'll take your assumption in the same vain. You are also assuming there that rents will not go up.

 

[redo]

Yes but of course you are speculating that the investors are the reason for the current high price and that they will stop investing. It is not an inevitability like gravity.

No, the demand for houses comes from many sectors, including investors. I am simply saying that any fall in demand, (from investors) will have an effect on the relative prices or house price inflation, if you will.

 

[Loki]

No, the demand for houses comes from many sectors, including investors. I am simply saying that any fall in demand, (from investors) will have an effect on the relative prices or house price inflation, if you will.

No your are wrong it is still may. You don't know if investors demand is reduced by punative government intervention that also encourages others. It is not "will" when you are talking speculation it is "I think" "it may".

 

[Loki]

So you can say "it is considered" -

yep
http://dictionary.reference.com/search?q=considered

it is not an inevitablity like "will" is

 

[Neffa]

Sitting on cash is certainly considered a bad idea in the current market. In fact if you are sitting on cash and are wrong you would loose value. I guess it would be pretty hard to face the idea that you might be wrong and that you lost money by not listening to people. Taking an a risk and loosing is one thing but to loose money through inaction sounds more unplesant.

If buying property,think long term and add value. Don't buy property and hope you are doing the right thing but be sure that you have no control over what happens.

How is your first statement "Sitting on cash is certainly considered a bad idea in the current market" any different from my assertion that prices are high? It's your belief/opinion - just like mine. You came down like a ton of bricks when I say anything like that but you do so yourself!

My cash is in equities which have gone up 43% in the last three years. Very happy with that return, thanks. If that constitutes inaction, count me in.

I listen to people and make my own judgements based on all perspectives. I think that is precisely what "investors" who buy property with a shortfall in monthly payments relative to rent are failing to do. They are being seduced with the idea that it never falls and are not seeing the risky situation they are in. If you are making a profit, good for you. If you are not, think hard before "investing".

 

[redo]

No your are wrong it is still may. You don't know if investors demand is reduced by punative government intervention that also encourages others. It is not "will" when you are talking speculation it is "I think" "it may".

That's a bit strong. Do you understand what I'm trying to convey? I refine it furthur for you, if demand falls, the price will fall also. Simple economics.

 

[askalot]

A pension fund invested in by your average person set up 30 years ago would certainly give you less than a house. Plus the rent was well over the the mortgage as time went on. I used an example a situation where things remained relatively constant. The truth is money changes value. €200 could easily move from 5% to 1% or less of your income. At some point you are likely to get a profit before you pay off the mortgage.
What has the average pension fund increase been in the last 10 years or even 5? Are they close to property?

The return for the last 10 years is 190 per cent.
The return for the last 15 years is 850 per cent.

 

[Duplex]

As famous economist John Kenneth Galbraith writes in his book "A Short History of Financial Euphoria":

"Those who had been riding the upward wave decide now is the time to get out. Those who thought the increase would be forever find their illusion destroyed abruptly, and they, also, respond to the newly revealed reality by selling or trying to sell. And thus the rule, supported by the experience of centuries: the speculative episode always ends not with a whimper but with a bang."

 

[Loki]

That's a bit strong. Do you understand what I'm trying to convey? I refine it furthur for you, if demand falls, the price will fall also. Simple economics.

No still wrong. Economics is a theory not inevitability.

How is your first statement "Sitting on cash is certainly considered a bad idea in the current market" any different from my assertion that prices are high? It's your belief/opinion - just like mine. You came down like a ton of bricks when I say anything like that but you do so yourself!

Becasue I didn't say it would happen. I certainly did not come down on you like a ton of bricks. I never stated my opinion/beleif about your actions. I commented on how it may effect your stance and viament proclamations about future events. You aren't sitting on cash you are gambling on the open market just to be clear.

If all you did was listen to people and comment that would be fine but you don't It appears you can't even see the difference between warning of dangers and considering people fools for not taking your slant. 43% increase is less than a property in Dublin increased in 3 years. So you have been wrong so far. With tax benifits it is worth me having a large mortgage too so I get more tax back over my property.

 

[redo]

No still wrong. Economics is a theory not inevitability.


Becasue I didn't say it would happen. I certainly did not come down on you like a ton of bricks. I never stated my opinion/beleif about your actions. I commented on how it may effect your stance and viament proclamations about future events. You aren't sitting on cash you are gambling on the open market just to be clear.

If all you did was listen to people and comment that would be fine but you don't It appears you can't even see the difference between warning of dangers and considering people fools for not taking your slant. 43% increase is less than a property in Dublin increased in 3 years. So you have been wrong so far. With tax benifits it is worth me having a large mortgage too so I get more tax back over my property.

Gravity is also a theory. If one was selling a house and there was no demand, what would one do in order to sell it?

 

[Loki]

The return for the last 10 years is 190 per cent.
The return for the last 15 years is 850 per cent.

A bit surprised but I think I better be fairer how much a pension do you get compared to a rental return after a simlar time. My may gets 5k from property a month and it cost her £10 a month(average) she bought in 1980.

 

[SteelBlue05]

No still wrong. Economics is a theory not inevitability.

If demand falls then price will fall eventually, thats inevitable. You might think its a basic theory but it is factual based on a open market place.