Future price of Irish properties

[Glenbhoy]

Basically there always emotive reasons for wanting to own property, leaving these aside, what Bearishbull is pointing out is that:
If the interest element of your mortgage repayment is greater than the amount you pay in rent, it may make more financial sense to rent rather than to buy - unless you also feel there will be capital appreciation in excess of the return you could get from investing the capital element of your mortgage repayment.

 

[Theo]

falw with your argument is that if the differentials continued to exist from now on for rest of your life the renter would be saving money every month for rest of his life and if he invested this saved money and left it for say 50 years or longer it would be worth more than a house due to compound returns based on long term historical returns.
for comparing renting to buying you should ignore the capital repayments and just look at interest element,the capital repayment is equivalent to savings which the homeowner has decide to invest in bricks ,as the capital amount decreases obviously the interest decreases but the decreases only occur due to other payments(capital repayment) which renters dont face.
the mortgage interest comes to an end because you repaid the capital amount which added to interest element is double current rents,if in theory you continued renting and renting was still cheaper than the interest element of a house you would save money every month for beyond the 20/30 term of a mortgage in same way people save on mortgage repayments when their mortgage is paid. if interest on an interest only mortgage on a particular house costs 25k a year and you can rent for 17k a year you save 8k a year on the interest alone (there are houses near me with these figures). if you saved the money you didnt have to pay on a mortgage and invested it over the period of a normal mortgage in a diversified portfolio you would have a similar sum to the value of the house the buyer owns but you have less risk due to diversification .obviously most people want to own at some stage and thats possible when prices are more reasonable.

However, you are assuming that rent charges remain fixed over the period. Rent increases as interest rates increase and also increase with inflation. The market will not allow you to enjoy 8k p.a. in savings indefinitely - otherwise we'd all be doing it and investing the 8k somewhere else. Thank God for capitalism!

And, walk2dewater, we (well, I do anyway) get your argument that you believe property is MASSIVELY overvalued and that the end is nigh. You've made the point loads of times. You appear to be a person who remembers the bad old days as you keep reminding us. You are also clearly someone who has stayed away from property, possibly as a result of that experience. Could it be simply co-incidence that you spew out your apparent anger and frustration towards property buyers as you do?

I agree with you that property is not a one way bet and that it does fall, sometimes severely in value. I am aware of a family that was evicted by their bank on Christmas Eve in the early 80's during the bad times. I am aware of another person who simply posted the keys to their house to the bank before doing a runner around the same time.

But, over time, property can be a rewarding investment - as long as you keep the greed out of it. And that is the problem today I believe, greed has clouded the judgement and has people making decisions that are not based on numbers. Since it appears you may also be a sesoned investor in other areas, perhaps this is what also angers you to see people make decisions like this.

 

[bearishbull]

However, you are assuming that rent charges remain fixed over the period. Rent increases as interest rates increase and also increase with inflation. The market will not allow you to enjoy 8k p.a. in savings indefinitely - otherwise we'd all be doing it and investing the 8k somewhere else. Thank God for capitalism!

And, walk2dewater, we (well, I do anyway) get your argument that you believe property is MASSIVELY overvalued and that the end is nigh. You've made the point loads of times. You appear to be a person who remembers the bad old days as you keep reminding us. You are also clearly someone who has stayed away from property, possibly as a result of that experience. Could it be simply co-incidence that you spew out your apparent anger and frustration towards property buyers as you do?

I agree with you that property is not a one way bet and that it does fall, sometimes severely in value. I am aware of a family that was evicted by their bank on Christmas Eve in the early 80's during the bad times. I am aware of another person who simply posted the keys to their house to the bank before doing a runner around the same time.

But, over time, property can be a rewarding investment - as long as you keep the greed out of it. And that is the problem today I believe, greed has clouded the judgement and has people making decisions that are not based on numbers. Since it appears you may also be a sesoned investor in other areas, perhaps this is what also angers you to see people make decisions like this.

rents cannot in long term increase greater than inflation plus real wage gains otherwise it would eat up an ever increasing amount of incomes and no one could buy or rent! yes rent will increase but so too will your wages due to inflation and productivity gains as has happened over last century where rents have always been a certain percentage of average income in the aggregate.

 

[Theo]

rents cannot in long term increase greater than inflation plus real wage gains otherwise it would eat up an ever increasing amount of incomes and no one could buy or rent! yes rent will increase but so too will your wages due to inflation and productivity gains as has happened over last century where rents have always been a certain percentage of average income in the aggregate.

And wouldn't that mean higher house prices also?

 

[conor_mc]

conor your not living in finacial reality given the current figures on rent investment returns elsewhere etc. your just assuming a house is a good investment in todays climate.

Not at all - a house is NOT a good investment in todays climate. But it could well be in 2,5 or 10 years time if/when there's a correction in the market.

I just don't see how the current housing bubble can survive another 30 years to maintain the conditions which are currently so favourable to renting to make it competitive with actually buying your own home, when looked at over a 30-year timeframe, unless the landlord is MASSIVELY subsidising the cost of his investment for the next 30 years!!!! That's the very bubble we all agree is not sustainable. So rent may be an option in the short-term, maybe even the medium term, but long-term I still can't see how it can work out, assuming that some sort of collective common sense will kick in at some stage and investors will actually try to make a profit on their investments.... at the renters expense of course!

 

[soma]

Rent increases as interest rates increase and also increase with inflation.

A Massive generaliation and it's complete rubbish - Real rents fell between 2001 & 2005 and anyone who has lived in e.g. Dublin can testify that real inflation (not government adjusted figures) during that time has been significant.

Rents rise and fall based on supply & demand - that's pretty much it. If my landlord upped my rent and realised I could rent around the corner without paying the increase, I'd move. If I couldnt do this (i.e. the supply was limited) then I'd have to pay up.

Personally, while I think Dublin is an expensive place to live, I think the rents are really good value.

You are also clearly someone who has stayed away from property, possibly as a result of that experience. Could it be simply co-incidence that you spew out your apparent anger and frustration towards property buyers as you do?

He's explained his position several times, although I appreciate you're a relatively late contributor to this (mammoth) thread.

As for 'anger & frustration' his comments seem pretty collected & rational to me.

 

[Theo]

A Massive generaliation and it's complete rubbish - Real rents fell between 2001 & 2005 and anyone who has lived in e.g. Dublin can testify that real inflation (not government adjusted figures) during that time has been significant.

Not a massive generalisation at all - its actually an historical fact and makes complete sense. No commercial landlord is going to sit back and watch their costs eat into their revenues. And the uncommercial ones will sell at the first sign of trouble and rent instead. That's the cycle and that's how it goes.

You coveniently forgot to note that 2001-2005 was at a time of unprecedented low interest rates of 2%. You'll find that rents won't be hanging around at 2001-2005 levels much longer. In fact, Daft recently reported an increase in Dublin rents.

 

[soma]

Not at all - a house is NOT a good investment in todays climate. But it could well be in 2,5 or 10 years time if/when there's a correction in the market.

So we'll put you under the 'bear' column then.. Man the bulls must be getting lonely over there..

assuming that some sort of collective common sense will kick in at some stage and investors will actually try to make a profit on their investments.... at the renters expense of course!

Oh really..? Investors start dumping their properties to take a profit (you cant be suggesting just randomly jacking up rents as market forces prevent that), thus increasing the supply in the market and pushes down rents, and this somehow affects renters negatively..? Hmm.. I think you and a few others could do with a copy of Economics 101..

 

[Theo]

He's explained his position several times, although I appreciate you're a relatively late contributor to this (mammoth) thread.

As for 'anger & frustration' his comments seem pretty collected & rational to me.

I'm sure walk2dewater can answer for himself (or herself?) - i'm looking forward to a response.

 

[conor_mc]

So we'll put you under the 'bear' column then.. Man the bulls must be getting lonely over there..

Oh really..? Investors start dumping their properties to take a profit (you cant be suggesting just randomly jacking up rents as market forces prevent that), thus increasing the supply in the market and pushes down rents, and this somehow affects renters negatively..? Hmm.. I think you and a few others could do with a copy of Economics 101..

If investors start to "dump" their properties, surely that's gonna decrease the supply in the rental market, thereby pushing up rents, no? Is that not Economics 101 or was there a misprint in my copy?

Incidentally, the "profit" I was talking about referred to making a few quid after paying the mortgage, covering costs etc rather than dumping the property. I can't see how bearishbulls assertion that he can rent for less than the cost of an IO mortgage for the next 30 years can stand up to scrutiny unless the current bubble exists for 30 years and investors subsidise his rent by making up the difference between their income on the property and their outgoings.

I think we all agree that there's a bubble, and it's gonna burst sometime in the future. Bearishbull can short the market and rent til that happens and then buy his own home, and he'll do better than anybody buying into the market now, but that doesn't mean he'd do better to rent instead of buy for the remainder of his life imo.

 

[soma]

Not a massive generalisation at all - its actually an historical fact and makes complete sense.

And wages don't increase by inflation, thus negating any rises..?

No commercial landlord is going to sit back and watch their costs eat into their revenues.

No rational landlord would, but seeing as 35% of irish "investors" say that their rents don't cover their expenses, rational thinking has gone out the window.

And the uncommercial ones will sell at the first sign of trouble and rent instead. That's the cycle and that's how it goes.

..and mass selling has no effect on supply & demand thus no effects on rents.. really..

You coveniently forgot to note that 2001-2005 was at a time of unprecedented low interest rates of 2%.

I did no such thing. You said rents rise along with interest rate rises and inflation. Seeing as it was a time of low interest rates, I simply pointed out that even significant inflation could not stop real rents dropping.

You'll find that rents won't be hanging around at 2001-2005 levels much longer.

Hah.. I'll take that bet no problem. So what's going to drive up rents..? Have you looked around lately..? Have you seen the absolute shed-load of new apartment blocks..? We have supply coming out of our ears (with the bulls, if you believe them, predicting another 80k builds a year for 15 years).

In fact, Daft recently reported an increase in Dublin rents.

..and if I remember correctly it was not greater than inflation.. therefore.. ;-)

 

[ubiquitous]

Could it be simply co-incidence that you spew out your apparent anger and frustration towards property buyers as you do?

Please attack the argument - not the poster...

 

[walk2dewater]

My point is that I can't see how renting long-term beats mortgaging over the long-term?

Hypothetically: If I said you can rent your house for €1 a year for the rest of your life, or pay €100 million now for it via a mortgage for 30yrs which would be better? Even though after 30yrs you own and make no more payments (but would still pay €1/yr for rent), would it make sense to 'buy'? Would renting be 'dead money' in this example?

 

[ivuernis]

If investors start to "dump" their properties, surely that's gonna decrease the supply in the rental market, thereby pushing up rents, no? Is that not Economics 101 or was there a misprint in my copy?

Not unless some of the renters buy the properties being "dumped", thus reducing the number of renters. Supply and demand also comes into play for renters and not just rental properties in such a scenario.

 

[soma]

If investors start to "dump" their properties, surely that's gonna decrease the supply in the rental market, thereby pushing up rents, no? Is that not Economics 101 or was there a misprint in my copy?

Conor, if you interpreted my phrase "dump" as meaning strapping several sticks of dynamite to their properties and blowing them up then your argument stands.

However, back in the land of Economics 101, when these properties are dumped (in the the "sold" meaning, not so much the 'explosive' meaning ;-) ) then these properties are back on the market thus increasing the housing stock (read supply) once again. Supply is the renters best friend.

 

[ubiquitous]

If investors start to "dump" their properties, surely that's gonna decrease the supply in the rental market,

not if they sell to other investors...

 

[conor_mc]

Conor, if you interpreted my phrase "dump" as meaning strapping several sticks of dynamite to their properties and blowing them up then your argument stands.

However, back in the land of Economics 101, when these properties are dumped (in the the "sold" meaning, not so much the 'explosive' meaning ;-) ) then these properties are back on the market thus increasing the housing stock (read supply) once again. Supply is the renters best friend.

How? Surely increasing the housing stock only serves to dampen the housing market? You're assuming that these dumped properties will be bought up by other investors who'll put them straight back onto the rental market. But what if the investment-property mania we see now doesn't last, Joe Public gets his fingers burnt and won't go near it again due to psychological scarring a la eircom Professional investors can't buy up all the ex-investment stock because the same event which burned Joe Public's fingers means that they no longer have the equity in their portfolio's to finance all these purchases.

I can see how dumping them might decrease the demand side of the rental market if potential renters now found that buying was affordable. Indeed, that's my very assertion that at some stage in the next 30 years somethings gotta give which would disprove bearishbulls idea that to rent for the rest of his life and invest the difference is better than buying because he's assuming he can rent for less than the cost of buying. Maybe today he can, but that's due directly to landlords subsidising rental income to cover the mortgage on the assumption that they'll make their money in capital appreciation and house prices can only go one way. They're wrong, some will learn the hard way, they'll leave the market, and houses will become more affordable generally.

 

[thewatcher]

not if they sell to other investors...

or the renters...I've just sold my property and taken a nice few quid on it, i'm now going to feed off one of these auld speculators for a while.I can now rent a house in a far superior area,for far far less than it would cost me to pay a mortage on the same property.I will buy again the problem for the speculators is if prices begin to drop,how long will the renters hold out until they begin to buy ?it could be a freefall.

 

[conor_mc]

or the renters...I've just sold my property and taken a nice few quid on it, i'm now going to feed off one of these auld speculators for a while.I can now rent a house in a far superior area,for far far less than it would cost me to pay a mortage on the same property.I will buy again the problem for the speculators is if prices begin to drop,how long will the renters hold out until they begin to buy ?it could be a freefall.

Bingo! This man gets my point.

 

[Duplex]

It’s difficult and possibly wrong to draw sweeping conclusions as to the motivations of Irish investors in the residential property market. However I find it hard to believe that falling rental yields are attracting investors at present. I believe that the rapid rise in capital values witnessed over the past few months is the main driver in the investment market.

The acid test, as to the fundamental soundness of the market, will come when prices stop appreciating at current rates. If the market is truly driven by ‘investment’ demand the market will stabilise and continue to grow, in response to occupier (tenant) demand. If the market is speculative the market will fall as ‘investors’ anticipated returns will no longer be meet by rising capital values.