Future price of Irish properties
- Thread starter bacchus
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bearishbull said:
I think flatlining or falling rents won't be enough to tip the market over the edge. Alot of first time investors have gone into it blinded by double digit growth and as long that continues they'll stay in the 'game'. Over supply and banks tightening their lending are the things to watchout for.
We may have reached over supply already as many of the properties being built seem aimed at investors and rising interest rates are going to make them think twice. 3 and 4 bed semis will be a bit more resilient.
askalot said:
What may also happen with the recent (and future) interest rate hikes is that investors disposable income will be reduced. Many of these recent investors were at their limit already and may now re-evaluate their postion.
As said in previous posts, a sudden surge in supply will dampen house price growth and may lead potential purchasers to adopt the "wait and see" approach. Up until now, they could not afford to take this position and may have artificially increased the underlying demand/prices they were seeking to avoid.
bearishbull
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askalot said:
yes but rents that arent going higher in line with wage inflation and house price rises indicate supply isnt that far from demand, as i said earlier rents for even the supposed in higher demand 3/4 bed semi's arent rising much if any.
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Neffa
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bearishbull said:
We're renting a 4-bed and still paying about 60% of the equivalent mortgage cost of owning it.
Cannot comment on the other sectors but from the postings here it looks like it may extend throughout the food chain
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Neffa
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ivuernis said:
Excellent idea.
Can I also ask if anyone is bullish that they state their cases why? Aside from Loki, no-one has really come forward for that point of view and I'd really welcome some inputs on that side.
I'm bearish, btw! (I'm sure that didn't surprise many of you).
Sure. Friends of ours have had to leave Ireland on a work posting for a year and are renting out their 4 bed semi in a well serviced area of south dublin. It took a good 2 mths to get tenants and they had 150 per month knocked off the rent.bearishbull said:
Based on the rent they were actually able to get, anybody buying the house for an investment, using a 15% deposit, would have to make up a shortfall of 200 euro per month on a mortgage for the remaining 85%. And that's with an interest only mortgage.
And every .25% increase in mortgage rates would add 107 euro to the shortfall.
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Neffa
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askalot said:
Is the 200/month shortfall after the two recent rises or is it now 414 per month?
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walk2dewater
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ivuernis said:
Or, ever decreasing circles of progressive ridiculousness?
...lets see, it waddles like a duck, quacks like a duck, floats like a duck... hmmm, but we've never had ducks around these parts, and we really really really dont like ducks... hmmm, so it must be a .............
no definitely not a duck...
Now here’s the rub.
Many people have identified that investors/speculators seem oblivious to the poor rental yields achievable in the market at present. It seems that participants are happy to subsidise their properties with out of pocket money. My explanation for this is a widespread expectation of continuing capital growth that will compensate the investor for their shortfall in rental income (albeit a notional compensation given that a sale has to take place in order to receive any capital gain).
The market at the moment is driven by a widespread, self-enforcing demand loop. The greater the demand the more prices rise, the more prices rise the greater the demand.
Everyone is crowded around the roulette table, all chips in, ‘all in on black !’ (sound of spinning roulette wheel) black it is horrrrrahhhy ! again , ‘all in on black !’ (sound of spinning roulette wheel) black it is; horrrrrahhhy. etc.
I still think that the market will collapse under its own weight, but not for a while yet.
Many people have identified that investors/speculators seem oblivious to the poor rental yields achievable in the market at present. It seems that participants are happy to subsidise their properties with out of pocket money. My explanation for this is a widespread expectation of continuing capital growth that will compensate the investor for their shortfall in rental income (albeit a notional compensation given that a sale has to take place in order to receive any capital gain).
The market at the moment is driven by a widespread, self-enforcing demand loop. The greater the demand the more prices rise, the more prices rise the greater the demand.
Everyone is crowded around the roulette table, all chips in, ‘all in on black !’ (sound of spinning roulette wheel) black it is horrrrrahhhy ! again , ‘all in on black !’ (sound of spinning roulette wheel) black it is; horrrrrahhhy. etc.
I still think that the market will collapse under its own weight, but not for a while yet.
Duplex said:
I agree with that.
I'd also add that alot of these investors have no medium to long term strategy. They only can see or are only projecting, short term gains.
They are banking on the market to rise (as outlined above) in order to be within reaching distance of a home, or least, have enough money for a deposit. There is absolutely nothing wrong with this. However, they also must take into account, the liquitity of property is not the best and could takes anywhere up to 6 months to sell. If there was a slight downturn in the property market, you could probably double that figure.
Another category of recent investors that are at risk are the ones who chose property because "it pays for itself, it doesn't cost a thing". Investors in the buy-to-let market are comforted by the fact that it can be rented out. And if that does not work out, "Sure, I can always sell it" . They have "worked" out the figures and "estimate" they would earn an extra 100 euro a month for doing nothing. Many in this category fail to realise that they have to pax income tax on the total amount of rent received and not on the difference between the rent and the mortgage. I suspect many of these could not cope for 6 months without any rent, before being forced to sell up at a discount to guarentee a quick sale.
Another section of investors would be the foreign property investors. They ones who clap themselves on the back for getting guarenteed rental income for 3 years, which in effect they fund themselves by paying over inflated prices.
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Neffa
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redo said:
Just to be clear - you only pay tax on the profit after interest costs, not the total rental income.
It’s hard to judge the overseas investment market. The Costa’s market in Spain is probably the most mature market, but I read a couple of weeks ago that prices had fallen by a as much as 30% from the peak (Sunday Times Ireland Property Supplement). Seasonal rental income never seemed sufficient to cover the carrying costs of Spanish holiday property, the market seems pretty thin at present with massive inventories and supply still coming on stream. I have anecdotal information suggesting that vendors are finding it difficult to get agents to accept instructions on second hand units. My main concern would be mortgage equity released from a bubbly Irish market disappearing into an equally bubbly market in Spain.
Bulgaria seems to have a much shorter season than Spain but a similar capacity to crank up housing production. I wonder what would have happened in Ireland in 1971 if we had thousands of Europeans looking to buy flats around our coast ? Would we have built like the clappers as well?, until we had satisfied all the demand and then some ?
That's after the two recent increases. Luckily for them, they actually bought the house ten years ago and so have a surplus of about 1,000 per month!Neffa said:
See that was the time to buy. And it is also a pretty good indication of how far off the scale prices have gone.
C
Chamar
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I would just like to say that driving around Co. Wexford today I was amazed by the amount of "for sale" signs that I passed and also new developments in the relative sticks. Not a very good statistical analysis I know!
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