Future price of Irish properties

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bearishbull said:
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.
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I think that would make far more sense.
 
walk2dewater said:
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.
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Thats not true. Revenue is only part of the return there is also capital appreciation. If your property's market value is increasing in line with inflation then your net worth is not decreasing.

Of course many investors are making the assumption that prices will always increase and knowingly buying properties on which they will make rental losses even at todays low rates based on that expectation of price increases which might not be the wisest move.
 
Duplex said:
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.
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The mortgage risk to the balance sheet might be repackaged and sold on but how about the risk to profits or even just profit growth of a correction in the property market? The PE ratio for a growing company is normally much better than that of a stagnant one (all the many other factors being equal) so there would be a risk to the share price if the profits suddenly stopped growing (and certainly if they fell).
 
dam099 said:
Thats not true. Revenue is only part of the return there is also capital appreciation. If your property's market value is increasing in line with inflation then your net worth is not decreasing.

Of course many investors are making the assumption that prices will always increase and knowingly buying properties on which they will make rental losses even at todays low rates based on that expectation of price increases which might not be the wisest move.
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And well spotted Dam099 :)

rent and asset value changes... do you know that almost all of the gains in holding assets be they property, shares, bonds, machinery, brands, etc is from the rent that flows from them.. the "Economic Rent" to use the economists term... wealth is derived from the productive or use value of something [an asset], from innovation and productivity and creation of new or improved versions of assets.... that's not to say that you can't speculate and make a fortune buying and selling, riding the boom and bust trends... I do it myself with reasonable success... but I know it's a shell game.. I know where the real game is... and I know that there's no way property prices in Ireland today reflect anything remotely close to their "economic rent"

So what we have in Ireland is a market in property that is based on the expectation of capital appreciation purely and simply... cos rents are real negative and, ah sure well, who cares about the rent when prices only go up... all that matters is location and keepin them immigrants coming in... ah yes the magical one-way express ride to the pot of gold at the end of the Irish property rainbow... magical capital appreciation, all we have to do is sit around and wait to sell our property on to someone else for more money than we paid for... couldnt be easier... sure isnt it our God given right?
 
Yes it does seem to be an extraordinary situation that he would buy into a bank which had such a huge exposure to the property market. He might have to reconcile his opinions with those of some of the banks spokespeople who continously talk up the market
 
From Breakingnews.ie this morning:

http://www.breakingnews.ie/2006/03/22/story250432.html

Warning about debt and rising interest rates
22/03/2006 - 09:19:28

The Money Advice and Budgeting Service has reportedly warned that many people could find themselves struggling to make ends meet in the event of further interest-rate rises.

Reports this morning said a significant number of people seeking help from the service were earning more than the average industrial wage of €30,000.

Some of these people are reportedly being forced to cut back on food and heat because they are struggling with repayments on mortgages and personal loans.

The Central Bank has been warning for several months about the high levels of debt in Ireland and the effect this could have in the event of an economic slowdown.

This morning's reports said the MABS was now warning that expected increases in interest rates during the rest of this year could leave many people unable to meet their day-to-day living expenses.
 
And another from BreakingNews. Was this guy always bearish or is this a change of stance?

Economist warns about risks of house price 'correction'
22/03/2006 - 10:10:56

Friends First economist Jim Power has said overdependence on the property market is placing the Irish economy in a vulnerable position.

In his latest quarterly outlook, Mr Power says the Irish economy is currently performing strongly, with GNP growth of between 4.4% and 4.9% expected for 2006 and 2007.

He also says consumer spending is back at Celtic Tiger levels due to rising salaries, the imminent maturing of Special Savings Incentive Accounts and an increasing level of borrowing.

However, Mr Power says the housing market is a real cause for concern, with any "correction" in house prices likely to have a substantial negative effect on the economy.
 
Neffa said:
From Breakingnews.ie this morning:

http://www.breakingnews.ie/2006/03/22/story250432.html

Warning about debt and rising interest rates
22/03/2006 - 09:19:28

The Money Advice and Budgeting Service has reportedly warned that many people could find themselves struggling to make ends meet in the event of further interest-rate rises.

Reports this morning said a significant number of people seeking help from the service were earning more than the average industrial wage of €30,000.

Some of these people are reportedly being forced to cut back on food and heat because they are struggling with repayments on mortgages and personal loans.

The Central Bank has been warning for several months about the high levels of debt in Ireland and the effect this could have in the event of an economic slowdown.

This morning's reports said the MABS was now warning that expected increases in interest rates during the rest of this year could leave many people unable to meet their day-to-day living expenses.
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Most people think they will be able to absorb a rise in ECB interest rates to 3-4% and I think most people will. However, what many people fail to factor into such a scenario is a rise in other essential commodities, such as home heating oil, gas, petrol, etc. We have seen how both oil and gas have steadily risen in the past couple of years. These new commodity price levels are not temporary high prices but more likely a new base level from which further prices rises are likely. A combination of further price rises in these commodities and a projected ECB rate of 3-4% could act as the trigger to reign back property prices rather than just a straight interest rate hike on its own. And of course the people who will most likely be hit the worst are those in the commuter belt who are wholly dependent on car transport to commute. For the money we are spending (and the profits being made) on property in this country all new builds should come with compulsory solar panels, wind generators and/or other energy saving devices. I cannot see any long-term value in most of our badly planned and unsustainable property development.

 
Neffa said:
Warning about debt and rising interest rates
22/03/2006 - 09:19:28

The Money Advice and Budgeting Service has reportedly warned that many people could find themselves struggling to make ends meet in the event of further interest-rate rises.

Reports this morning said a significant number of people seeking help from the service were earning more than the average industrial wage of €30,000.

Some of these people are reportedly being forced to cut back on food and heat because they are struggling with repayments on mortgages and personal loans.

The Central Bank has been warning for several months about the high levels of debt in Ireland and the effect this could have in the event of an economic slowdown.

This morning's reports said the MABS was now warning that expected increases in interest rates during the rest of this year could leave many people unable to meet their day-to-day living expenses.
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Many people are taking out loans on the basis that the salaries will increase by a large amount further down the line. I would think that they are also not factoring in 'rainy day' scenarios so they are borrowed up to the hilt and thus are extremely vunerable to the interest rate rises which have recently arrived and the ones which are in the pipeline.

If a large amount of people are finding themselves in this situation there has to be serious questions about the lending policies (if there are such things!!!) of our financial institutions. Shouldn't our central bank be doing some sort of trawl on this and taking action if dubiuos practices are in place?
 
theres very little statistics in the MABS story,i'd say for now its laregly anecdotal but if theres increased levels in statisitcis i'd be concerned. people do think things will stay rosey for a long long time but we all know economies dont work like this.i'd like to see a macro model of 4% base rates ,a slowdown in america and oil consisitantly over 60dollars .foriegn firms based in ireland account for nearly 90% of our exports,when even a chunk of them decide to move on to cheaper cost bases then we're fecked.
 
Seems to be a more detailed report of Power's comments:

The Irish Times said:
Warning against 'irrational exuberance' in property

The Irish economy is overly dependent on the housing sector and the Government should act to quell growing signs of irrational exuberance among consumers, a leading economist warned today.
In his latest quarterly outlook, Friends First economist Jim Power said that while the economy on track for another strong performance in 2006, a correction in house prices would severely damage consumer confidence and would undermine the overall economy.

"There is no doubt that the economy is performing strongly, but this performance is over reliant on the housing market which is exerting an inordinate influence on the overall health of the Irish economy," warned Mr Power.
Mr Power said Irish consumers' "incredible willingness to borrow" is being fuelled by rising salaries, the prospect of maturing SSIA funds and low income taxes.
Echoing the phrase made famous by Alan Greenspan before the dot.com crash Mr Power warned that "Consumer spending is on fire and there is strong evidence of irrational exuberance.
"Against this background it is not surprising that inflationary pressures are starting to re-emerge and it would now be prudent for Government to tighten fiscal policy. However the political cycle militates against this," said Mr Power.
Mr Power explained that the lopsided growth in favour of the construction sector has made the economy vulnerable to any downturn which could be triggered by a sharp hike in interest rates.
In the final quarter of 2005 construction activity accounted for 12.7 per cent of total employment. Total output from the sector was valued at €30 billion in 2005 or 19 per cent of GDP.

The size of the mortgage market has grown from under €25 billion in 2000 to €100 billion in January 2006, this has contributed to strong growth in financial services sector employment.
"Many house purchasers are taking on mortgages at the upper end of their comfort zone. Between December 2005 and 2006, interest rates are likely to increase by 1 per cent.
According to Mr Power, a large number of the companies quoted on the Irish stock exchange are also heavily influenced by and dependent on the health of the housing market and housing related activities. These include; AIB, Bank of Ireland, Anglo Irish Bank, Irish Life and Permanent, Grafton Group, Abbey, IFG Group, Kingspan Group, McInerney Holdings, Readymix and to an extent CRH.
Any serious setback for the Irish housing market would have a significant negative knock-on effect for these companies and consequently for Irish pension funds and private equity holdings.
"Our policy makers need to ensure that a sustainable indigenous economy is created alongside the housing sector and the public sector. An economy cannot grow on the basis of the public sector and the housing market indefinitely," warned Mr Power.

© 2006 ireland.com
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bearishbull said:
theres very little statistics in the MABS story,i'd say for now its laregly anecdotal but if theres increased levels in statisitcis i'd be concerned. people do think things will stay rosey for a long long time but we all know economies dont work like this.i'd like to see a macro model of 4% base rates ,a slowdown in america and oil consisitantly over 60dollars .foriegn firms based in ireland account for nearly 90% of our exports,when even a chunk of them decide to move on to cheaper cost bases then we're fecked.
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I agree - such an insight would be really interesting. I also wonder what would happen to the economic story if rising rates caused construction to slow down significantly - unemployment would rise and the general economy would surely suffer with knock-on effects on house prices.
 
bearishbull said:
people do think things will stay rosey for a long long time but we all know economies dont work like this.
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There's a report out today (article posted below) from 'NCB Brokers' basically saying that all will be rosy in the economy for the next 15 years. I took a quick look at their website just to see if they were owned by one of the usual suspects.. but do they do appear to be largely independent.

Now.. let's say we've had 15 years of a economic boom already.. (personally I see the 'real' boom having finished 3-4 years ago and we've just been 'faking it' thru credit since, but I digress..).. and these guys are predicting another 15 years of growth.. that's 30 years straight growth uninterrupted by recession. Is it just me or is that extremely unlikely in a free-market economy..? Has this ever been achieved before..? (Maybe Germany post WWII..?) It just seems remarkably unlikely, at least to me.

The Irish Times said:
NCB predicts 15 more years of economic growth

Ireland's burgeoning population of young affluent consumers should ensure that Ireland's economic growth over the next 15 years will be the envy of Europe, according to new research by NCB stockbrokers.
In a major new study titled 2020 Vision, NCB economists Dermot O'Brien and Eunan King point to the demographic dividend which should ensure that demand for houses, cars and services will remain buoyant in the near term.
The Irish baby boom which was later than other countries spans the years between 1971 and 1983 when 900,000 babies were born. This age group which is the biggest single cohort is now entering its period of maximum consumption and will have a major influence on shaping of Irish economic and social policy in the years ahead, according to NCB.
NCB estimates that when immigration is added to the Ireland's high birth rate, Ireland's population will exceed 5.3 million by 2020 with immigrants accounting for 20 per cent of the population.
The next 15 years will be marked by a high levels of consumption which, alone, could amount to 2.75 per cent in GDP growth. However the tide will turn after 2020 with the greying of the baby boom generation and pension costs will take up a greater slice of GDP.
Crucially for the economy, NCB estimates that productivity growth of 4 per cent is possible as higher skilled service workers replace those in manufacturing. However this forecast is based on optimistic assumptions of the widespread use of IT and a flexible labour market.
Immigrant labour will be a central pillar of future growth and NCB's research shows that contrary to common perception most immigrants are employed in high-skilled sectors. The research based on CSO data shows that 65 per cent of immigrants are in high-skilled jobs compared to 60 per cent of the native population yet the majority of immigrants are still working in jobs below their qualifications.
Against such a positive backdrop it is not surprising that NCB expects demand for housing to remain strong though the market should cool from its current levels. NCB expect the housing market to peak at 11 per cent this year before falling to 6 per cent in 2007 and landing softly on low single digits thereafter.
Some economists have been puzzled by the apparent conundrum between surging employment growth, which has overtaken overall economic growth, implying a fall in productivity.
However, Mr O'Brien and Mr King believe that Ireland's growth rates have been underestimated and events in the real economy point to a more robust level of activity than is borne out in the official statistics. NCB believes that the GDP growth figures will be eventually revised upwards to 6 or 6.5 per cent.
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soma said:
There's a report out today (article posted below) from 'NCB Brokers' basically saying that all will be rosy in the economy for the next 15 years. I took a quick look at their website just to see if they were owned by one of the usual suspects.. but do they do appear to be largely independent.

Now.. let's say we've had 15 years of a economic boom already.. (personally I see the 'real' boom having finished 3-4 years ago and we've just been 'faking it' thru credit since, but I digress..).. and these guys are predicting another 15 years of growth.. that's 30 years straight growth uninterrupted by recession. Is it just me or is that extremely unlikely in a free-market economy..? Has this ever been achieved before..? (Maybe Germany post WWII..?) It just seems remarkably unlikely, at least to me.
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The study seems to be based on a very narrow set of criteria, mainly population growth and immigration sustaining things. So we're going to have 1.06 million immigrants in Ireland by 2020? I've nothing against it, just can't see it happening. Not a mention of interests rates or the global economy.

Why don't these economists put in some real effort and give us something with real forethought and insight into where the Irish and world economies are heading, rather than just lazily extrapolating current trends to 2020 and arriving at said rosy conclusions, which is neither difficult or useful is it?

 
Thing I don't get about the immigration thing is that people say x amount of people come in 2005, so then by 2020 the amount of people will be 15*x.

People don't seem to take into account that a substantial amount of the new immigrants won't stay.
 
daveirl said:
Thing I don't get about the immigration thing is that people say x amount of people come in 2005, so then by 2020 the amount of people will be 15*x.

People don't seem to take into account that a substantial amount of the new immigrants won't stay.
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And the other thing all these straight line forecasts seem to forget to include is how expensive it will be to live here relative to other economies where immigrants could go. If Germany recovers and you can live & work there for a much lower cost than the costs of living in Ireland, why come here? Remember, people have a choice on where to go for their stint abroad - we are very strong at the minute, but how NCB can say that outperformance will continue for 15+ years is (as Loki would say) Voodoo Economics at its finest.
 
they seem to be saying that consumption of houses cars etc will drive the economy-where will the money come for this?
seems very simplistic analysis. doesnt address foreign multinationals and competitiveness and inevitable slowdown in construction sector and the knock on effects in economy.
pharmaceuticals and technology are two biggest exporting sectors- whose to say they will stay?
we have a poor indigenous export sector,we cant rely on consumption of houses cars etc to grow our economy forever,we have to start creating real long term wealth through real high value added goods and services ,the thing is every other country is trying to get these value added jobs too and most are lower cost than us.
i cant beleive any economist would asssume 15 years of economic prosperity in a small open economy that is highly vunerable to any external shocks.
 
The study by NCB did not appear to be very scientific, it seemed to set 2000 as Year 0, and extrapolate immigration from that point onwards, this seems simplistic in the extreme. It makes no mention of the reason as to why many immigrants come here (namely to work in construction, to build houses to rent to themselves), and what they will do if demand eases off in that sector (save to say that the number of immigrants they predict coming in will mean there is continued demand for 65,000 new builds per annum). In addition they have by all accounts predicted economic growth of approximately 6% p.a, this seems extraordinarily high for a 15yr time scale, especially as mentioned above, in a small economy which is probably highly susceptible to the vagaries of our various major markets such as the Eurozone, UK and US. Essentially they seem to be saying that:
Population will grow to over 5m, this increase in population will require new housing, thus keeping the construction industry strong.
These new immigrants, coupled with the spendng power of the natives (property rich) will rush off to buy new cars and any other high value consumer goods they can get their hands on (I want a PS3 myself, on a 56inch rear projection tv). However, given that we don't actually manufacture cars or most consumer goods here, this may not be as beneficial to the economy as is suggested. In fact the congestion caused by double the amount of cars may actually restrict economic growth through lost man hours!
All in all, it's completely dependent on another 1m people immigrating and staying here, which may happen, but chances are.....
 
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