Future price of Irish properties

[Duplex]

So the difference between what you paid for the asset and the current market value, is devoid of any return? Loki I understand where you are coming from but I would suggest that the market looks at an investment based on current rents and capital values. You seem to be employing a yield analysis based on the purchase price which is not helpful in comparative investment analysis. I’ll not trouble you on this subject again.

 

[Calina]

Who said these people were proffessional property investors, in fact how many property investors are there? Most do it as a side subject.

From a tenant/landlord point of view this is one of the biggest, if not THE biggest problem in the rental market - landlords who do not have a clue what they are doing, do it on the side, have little or no concept of their obligations under law and believe they have rights which exist only in their imaginations.

You see the problem there is you can use it to make analysis of the over all market but forget that property is not purely an asset it has a use in itself. You also ignore the reality of financial situations live in. You can't give your kids some shares and say live in that.

I would venture to say that the vast majority of investors are interested in its revenue generating properties, not its utility, after all, they don't exploit its utility functions.

No that is current MARKET rent yields. My rent yield is by what I am paying and what I am recieving. Not great on definitions. If you are using rent yields in your way as I said you would be saying many investors are not getting a return from their property which is simply not true. I think you guys are mixing up economic theory and book keeping and getting a very warped view of the world.

You two guys don't know what yield means.

[broken link removed]

Finally, from the point of view of guesstimating where Irish property prices are going to go, I would hazard a guess that rental yields based on historical purchase prices are pretty irrelevant to anyone considering buying today. Yield calculations based on current market value (assuming market value and purchase price are roughly equivalent, although that's not always a given) are somewhat more relevant to the pleb with the moolah who's coughing up for the investment property, fulltime professional landlord or investor on the side. In other words, your rental yield doesn't matter to future movements of property prices.

 

[Duplex]

If anyone likes graphs here's a bunch on the UK property market. It would be nice to have this type of data on the Irish market.


[broken link removed]

 

[walk2dewater]

If you are using rent yields in your way as I said you would be saying many investors are not getting a return from their property

Well spotted Loki. If the net revenue from your property divided by the market value of the property is less than inflation then you are receiving a negative real return. In plain English: Your net worth is decreasing. That's why my capital is elsewhere.

Why would I sink €300,000 of my wealth into an asset and get out €8,000/year net? My capital is in precious and base metals, oil, natgas, and canadian dollar bonds. My yield on assets has been vastly higher than Dublins property owners for several years now. That's why I rent and allow the owner of the property I live in carry the bag.

But Dublins property barons dont see it that way. The reason I suspect is most of these players don't actually have liquid capital, rather they have property equity only, leveraged through debt. When you're playing around with leveraged debt funny money and prices are going up up up, who cares what the yield is.

Who cares that is, until those IOUs start coming in fast and heavy and the market eats you alive.

 

[Neffa]

As I think we're about to go into the world of semantic arguments again , perhaps we should try to get back on topic.

The Irish Times reports today that the signals from the ECB are for a further .75% increase in ECB rates by end-2006 based on increasing recovery in the German market and concerns about inflation.

That would mean a BTL investor would see their financing costs for a typical €350K interest-only loan rise from about €950 pcm to circa €1330pcm in a 12 month period. This is bound to start hurting some people in the market soon.

Oddly enough, we saw a property round the corner from us come up for sale last week - it was a nice 4-bed period house which was being renovated to be offered for rental - it is now for sale (weirdly mid-way through refurbishment) because of a "change of circumstances". I wonder if the anticipated rises are starting some to re-think.

 

[Neffa]

Meant to post this earlier - this is an OECD paper looking at the state of the property market in about 20 countries including Ireland - makes for pretty scary reading, particularly the Irish position on price/rent and price/income relative to other markets.

[broken link removed]

 

[bearishbull]

If anyone likes graphs here's a bunch on the UK property market. It would be nice to have this type of data on the Irish market.


[broken link removed]

well that graph does look bad and the situation is bad but not as bad as that graph illustrates.
you would have to allow for demographic changes and changes in real income but it would still indicate house prices are significantly overvalued in historic terms and well out of line with long term trends.

 

[Neffa]

If anyone likes graphs here's a bunch on the UK property market. It would be nice to have this type of data on the Irish market.


[broken link removed]

Have a look here - a paper from the economics team at Trinity:

[broken link removed]

 

[bearishbull]

current rental yields are good indicators of current value in the market. a falling yield indicates decreasing value from an investment basis and is indicative that something is wrong with the normal rental-purchasing relationship

 

[Duplex]

Thanks Neffa for the OECD and TCD links, I’ve read the TCD research previously, and yes very bearish. I believe that the author is now editor of Business and Finance btw, see it pays to be bearish. I wont start on the UK market Bearishbull, just to say that that site is worth a browse has some stats on Northern Ireland (six counties).

 

[Nermal]

Why would I sink €300,000 of my wealth into an asset and get out €8,000/year net?

The point is that in many cases it's not you sinking the €300,000, it's the bank. When you can get a bank to lend you multiples of your income at 3% to invest in 'base metals, oil, natgas, and canadian dollar bonds', then that'll be a fair comparison.

 

[hmmm]

The point is that in many cases it's not you sinking the €300,000, it's the bank. When you can get a bank to lend you multiples of your income at 3% to invest in 'base metals, oil, natgas, and canadian dollar bonds', then that'll be a fair comparison.

Interesting perspective and one that's shared by many property investors who've discovered leverage for the first time. It's wrong though - the bank is essentially renting you a sum which they will have secured on an asset. As long as the asset you are investing the sum in increases in value at a rate higher than the rent you pay on the sum borrowed, you're in the money. If the market turns you get to find out that you do actually owe 300k and the bank will want it back.

 

[bearishbull]

[FONT=Arial, Verdana, Arial]from todays indo.[/FONT]
[FONT=Arial, Verdana, Arial]Flatley eyes 5pc stake in BoI but warns of bubble[/FONT]


[FONT=Verdana, Arial]
Ailish
O'Hora
BOSTON-based billionaire Tom Flatley is considering the purchase of up to 5pc in Bank of Ireland, Ireland's second biggest bank, industry sources said yesterday.
Mr Flatley, who is worth $1.3bn, confirmed to the Irish Independent that he is looking at "taking a position" in an Irish company but would not comment directly on buying into Bank of Ireland.
Investment advisers to Mr Flatley were in Dublin last week to look at the potential of him taking a position in Bank of Ireland.
Since divesting of much of his massive property portfolio in the US in recent years, the Co Mayo-born tycoon is believed to have a substantial cash war chest in search of a solid Irish investment.
A 5pc stake in Bank of Ireland at current prices would cost just under €750m, based on yesterday's closing price of €15.41 per share.
Mr Flatley said that Bank of Ireland is "a terrific bank and will be a player in the future".
It is understood that he would take a stake in Bank of Ireland as an investment rather than a controlling position and could buy up to 5pc of the Bank's shares.
Mr Flatley, who left Kiltimagh in Co Mayo when he was 18 and made his fortune mainly in the construction/real estate sectors in the US, said: "Why wouldn't I want to invest in an Irish company? I should have done it way back but I didn't have the time."
In a wide ranging interview due to be published in this newspaper on Thursday, Mr Flatley ruled out investing in property in Ireland at current prices. In a stark warning from a billionaire property mogul, Mr Flatley said it was "too expensive" and warned that a "correction" in the Dublin housing market is on the cards.
"When the correction comes, it will hit hard," he said. "I read the Irish papers from time to time and am shocked at the prices in Dublin."
He added that during his development years he went through four down times, and when it comes to property "no tree grows to the sky".
"I've watched the corrections in the past take place every ten or 12 years, and we've now gone 16 years in the US," he said.
He added that he is thrilled with the performance of the Irish economy but he would be happier if things slowed down.
"I really do worry about the Dublin property market and I believe it is more vulnerable than any market I know."
According to Mr Flatley, areas in the US like California, Massachusetts and the east and west coasts where prices have accelerated the most are on a par with increases in the likes of Galway, but the Dublin market is in a league of its own.
He added that one of the problems in Ireland is that interest rates are now dictated by Europe.
"You have a bit of a problem here because your Alan Greenspan (the former chairman of the Federal Reserve) is in Brussels and you are now part of the European Union.
"It's just a matter of when the correction will be.
"Three years ago I would have said it was coming next year."
[/FONT]

 

[Nermal]

Interesting perspective and one that's shared by many property investors who've discovered leverage for the first time. It's wrong though - the bank is essentially renting you a sum which they will have secured on an asset. As long as the asset you are investing the sum in increases in value at a rate higher than the rent you pay on the sum borrowed, you're in the money. If the market turns you get to find out that you do actually owe 300k and the bank will want it back.

where am I wrong? i just stated that the only way most people get leverage is on property.
walk2dewater stated that he had 300K invested in commodities and that it had outperformed the same amount invested in property over the past few years. fair enough, but with 300K in deposit & interest payments i could have a lot more exposure to property than he had to commodities. and a lot more gains to show for it.

 

[Neffa]

[FONT=Arial, Verdana, Arial]from todays indo.[/FONT]
[FONT=Arial, Verdana, Arial]Flatley eyes 5pc stake in BoI but warns of bubble[/FONT]


[FONT=Verdana, Arial]
Ailish
O'Hora
BOSTON-based billionaire Tom Flatley is considering the purchase of up to 5pc in Bank of Ireland, Ireland's second biggest bank, industry sources said yesterday.
Mr Flatley, who is worth $1.3bn, confirmed to the Irish Independent that he is looking at "taking a position" in an Irish company but would not comment directly on buying into Bank of Ireland.
Investment advisers to Mr Flatley were in Dublin last week to look at the potential of him taking a position in Bank of Ireland.
Since divesting of much of his massive property portfolio in the US in recent years, the Co Mayo-born tycoon is believed to have a substantial cash war chest in search of a solid Irish investment.
A 5pc stake in Bank of Ireland at current prices would cost just under €750m, based on yesterday's closing price of €15.41 per share.
Mr Flatley said that Bank of Ireland is "a terrific bank and will be a player in the future".
It is understood that he would take a stake in Bank of Ireland as an investment rather than a controlling position and could buy up to 5pc of the Bank's shares.
Mr Flatley, who left Kiltimagh in Co Mayo when he was 18 and made his fortune mainly in the construction/real estate sectors in the US, said: "Why wouldn't I want to invest in an Irish company? I should have done it way back but I didn't have the time."
In a wide ranging interview due to be published in this newspaper on Thursday, Mr Flatley ruled out investing in property in Ireland at current prices. In a stark warning from a billionaire property mogul, Mr Flatley said it was "too expensive" and warned that a "correction" in the Dublin housing market is on the cards.
"When the correction comes, it will hit hard," he said. "I read the Irish papers from time to time and am shocked at the prices in Dublin."
He added that during his development years he went through four down times, and when it comes to property "no tree grows to the sky".
"I've watched the corrections in the past take place every ten or 12 years, and we've now gone 16 years in the US," he said.
He added that he is thrilled with the performance of the Irish economy but he would be happier if things slowed down.
"I really do worry about the Dublin property market and I believe it is more vulnerable than any market I know."
According to Mr Flatley, areas in the US like California, Massachusetts and the east and west coasts where prices have accelerated the most are on a par with increases in the likes of Galway, but the Dublin market is in a league of its own.
He added that one of the problems in Ireland is that interest rates are now dictated by Europe.
"You have a bit of a problem here because your Alan Greenspan (the former chairman of the Federal Reserve) is in Brussels and you are now part of the European Union.
"It's just a matter of when the correction will be.
"Three years ago I would have said it was coming next year."
[/FONT]

Huge contradiction here - he believes in the long-term story of the BoI but is bearish on property. Yet the bank is hugely exposed to the property bubble here so effectively by buying into the bank he is buying into the property market - doesn't make sense to me.

 

[Neffa]

where am I wrong? i just stated that the only way most people get leverage is on property.
walk2dewater stated that he had 300K invested in commodities and that it had outperformed the same amount invested in property over the past few years. fair enough, but with 300K in deposit & interest payments i could have a lot more exposure to property than he had to commodities. and a lot more gains to show for it.

The point is that the positive aspect of a leveraged purchase holds true providing the assets purchased increase in value. If they fall in value or the cost of servicing the interest increases, then the negative aspects of a leveraged purchase could kick in - forced closures or negative equity. I think that w2dw was making the point that leverage appears to be considered a one-way bet for amplifying returns, but given the focus of this thread on future values of Irish property and the general bearish stance that most posters have shown, there is a risk that the leveraged position could cause a lot of pain on a market downturn and/or rate rises.

 

[Duplex]

Not only is this guy a awesome dancer , he seems to know a little about property investment. He made reference to the Boston market in that report, which has seen the second highest growth in prices the US after San Diego. The market has turned now so it seems.

Massachusetts home prices fall
The number of homes sold in Massachusetts dropped a whopping 21 percent in January compared with a year ago, the largest year-to-year decrease in monthly home sales in a decade. As a result, home values have begun to soften. Statewide, they actually fell slightly in January compared with a year ago.
Such pressures are forcing a rising number of homeowners to erase their debts by forfeiting their homes. Foreclosure filings in the county that includes Boston nearly doubled in January from a year ago, ForeclosuresMass. says.
Homeowners "call us and are heartbroken," says Robert Pulster, executive director of the Ecumenical Social Action Committee, which works with Boston residents on the brink of losing their homes. "They thought it was their dream."

http://www.csmonitor.com/2006/0321/p01s02-ussc.html

 

[Duplex]

Huge contradiction here - he believes in the long-term story of the BoI but is bearish on property. Yet the bank is hugely exposed to the property bubble here so effectively by buying into the bank he is buying into the property market - doesn't make sense to me.

Much of the mortgage risk is repackaged by the banks and sold on the money markets as mortgage backed securities. Still a slight contradiction depends when and at what price he buys I guess.

 

[bearishbull]

Much of the mortgage risk is repackaged by the banks and sold on the money markets as mortgage backed securities. Still a slight contradiction depends when and at what price he buys I guess.

i think its more a case of he wants to own a chunk of an "oirish" company more for sentimental reasons than anything else.forgeting about his interest in bank of ireland he is a property billionaire and has seen it all before and reckons the correction is on the cards.investors,ignore at your peril!

 

[bearishbull]

p.s it says he interested in a 750million stake when he;s worth 1.3 billion. no billionaire investor is gonna stick half his money into one share in a small exposed market. i reckon the Bank of ireland part of the story is nonsense ,he probably was bragging to the people in the old country how well he ahd done in america and could theoretically buy a chunk of the bank of ireland.