Rents will have to start rising soon

[JohnG]

As you are probably aware there is a hugh shortage of houses in Ireland at the moment......... but only for the amount of people who want to buy (mostly second and third properties). The trends in rent levels (and vacancy periods) prove that there is no shortage of bedrooms / roofs for the number of people who live here.

As per the lates quarterly DAFT report it shows that [asking] rents are running at about 3.8% of asking purchase prices in Dublin for a 1-3 bed property, with an average of 9 days vacant between lets. This ignores the fact that sales continue to be above asking prices and that it's easy to get a discount on the rents.

If you assume that one months rental goes on insurance / maintenance the net yield is about 3.4% of purchase price, or an estimated 3.1% of total investment (including stamp, legals and furniture).

With interest rates getting close to 4.5% and rising, this rent will only cover about 68% of the interest only mortgage payments, or only about half of a 30 year annuity mortgage.

How long more can investors continue to believe that this is a good method of saving for their pension!

This leads me to believe that investors will soon stop buying, and some may even start selling. This will lead to reduced availability of rental properties and rents will start to rise to a more reasonable level.


Out of interest - I loved the comment in the DAFT report that " If there were any change in the confidence of the market this would be reflected first in a drop in asking prices, thus appearing first in the Daft.ie House Price Index." I always thought that you might continue to ask for the higher price, and reduce gradually if you found that your property was not selling.

 

[bearishbull]

i'd say rental yields are a lot less than 3.8% insurance maintenace empty periods all add up to close to 2% of a properties value. My friend rents small 3bed house in ranelagh for 1600 a month and its "valued" at 900k ,factor in stamp duty for an investor plus maintence insurance etc yields are close to 1%.

if a lot of the investors sell up then yes number of rental properties may drop but the numbers renting will drop too as more properties will be on market and prices may fall due to large number of sellers. i can see rents staying same or rising at same rate as inflation and prices falling in next 5 years meaning rental yields rise while prices fall.

 

[hmmm]

I question the accuracy of the DAFT report, and I've questioned it for some time. My rent has remained unchanged for a good 5/6 years now, and if anything looking at rents in the area it has dropped in the past year.

As to rents increasing - you hear quite a few of the "newbie" BTL landlords talking about raising rents now that interest rates are rising which is hilarious - they are in for a shock when they approach their tenants.

I remember when the Bacon report changes were introduced there was a temporary squeeze on rents, but I'd characterise those days as the days when you would queue with 15 other people to see a property. These days tenants seem to have the whip hand.

Ultimately rental properties and purchased properties has to be a zero sum game. There may be temporary blips where rents increase or decrease, but overall if there are more people buying there are fewer renting and vice versa. The imponderable are those who are currently letting their places remain vacant hoping for capital appreciation - if the market starts to dip I think there is somewhat of a chance that you may see both prices and rents start to spiral downwards.

 

[beattie]

I question the accuracy of the DAFT report, and I've questioned it for some time. My rent has remained unchanged for a good 5/6 years now, and if anything looking at rents in the area it has dropped in the past year.

As to rents increasing - you hear quite a few of the "newbie" BTL landlords talking about raising rents now that interest rates are rising which is hilarious - they are in for a shock when they approach their tenants.

Agree with the above. My rent is ~15% less than it was 4 years ago (and it is in D4 which one wouldconsider to be a desirable rental location). My landlord didn't even raise the spectre of a rental increase the last time the yearly renewal came around.
If the ECB give a 50 basis points increase in June many investors will certainly get one hell of a jolt. The battle will be interesting in and around July/August when the banks pass on the rate increase to the customers

 

[markowitzman]

And potentially more "silly money" from SSIAs will further inflate the market. I feel it might be a time to sell an investment property or two into this market! Fear and greed and reversion to mean and all that!

 

[Duplex]

As rent and incomes are inextricably linked, it is interesting to note that the CSO has reported incomes deflation in the unskilled manual sector in their latest report.

The value of property (in the main) is a function of the income it can generate; hence higher prices/rents are achieved for retail units where foot fall is high. Similarly the value of domestic property is a function of the income produced or productivity of its occupants. In our global economy where cheap labour is plentiful the incomes ceiling is falling; easy credit may give the illusion in Ireland that productivity is unimportant but that's a mere mirage.

 

[walk2dewater]

As rent and incomes are inextricably linked, it is interesting to note that the CSO has reported incomes deflation in the unskilled manual sector in their latest report.

The value of property (in the main) is a function of the income it can generate; hence higher prices/rents are achieved for retail units where foot fall is high. Similarly the value of domestic property is a function of the income produced or productivity of its occupants. In our global economy where cheap labour is plentiful the incomes ceiling is falling; easy credit may give the illusion in Ireland that productivity is unimportant but that's a mere mirage.

Yes yes yes Duplex. But people love a good bubble, the big score, being on the right side of bet, riding the up cycle. It's fundamental to the way we Westerns view the world. The thing is the other side of the coin, the fear and panic of losses, hasnt gone away.