Prop­erty mar­ket highs and lows of 2017

The Irish Times - - Residential Property - Madeleine Lyons Prop­erty Ed­i­tor

Ayear fur­ther along in our so-called “eco­nomic re­cov­ery” and the prop­erty mar­ket re­mains dys­func­tional. It’s an in­dict­ment of mea­sures taken – or not taken – that home­less peo­ple are liv­ing in ho­tels and tourists are tak­ing up badly needed apart­ment ac­com­mo­da­tion for short-term stays. Set this against a back­drop where one in four peo­ple in the cap­i­tal rent – the high­est fig­ure since quar­terly records be­gan – and av­er­age rents are soar­ing by be­tween 5 per cent and 6 per cent, mainly driven by an ex­treme short­age of avail­able rental ac­com­mo­da­tion.

Low stock

Mean­while the num­ber of homes avail­able to buy re­mains crit­i­cally low, and this con­tin­ues to ex­ert up­ward price pres­sure in par­tic­u­lar at the lower end of the mar­ket where first-time buy­ers are des­per­ate to move on from pay­ing ex­tor­tion­ate rent.

There is a gen­er­a­tion of home­own­ers who paid above the odds for their first houses and apart­ments in the boom and now need to move on as fam­i­lies ex­pand and they emerge from neg­a­tive eq­uity. Mean­while pop­u­la­tion growth is at its high­est since 2008, adding fur­ther de­mand-side pres­sure.

Prop­erty prices in the cap­i­tal have in­creased by al­most 12 per cent, ahead of ex­pert pre­dic­tions for the year of around 10 per cent. The level of sec­ond-hand stock avail­able to buy is only around 1 per cent, a fig­ure which in a nor­mal functioning mar­ket should be closer to 4 per cent.

My­Home fig­ures show it cur­rently has 20,000 sec­ond-hand prop­er­ties avail­able to buy, which rep­re­sents a drop of 6.5per cent on De­cem­ber last year. It’s es­ti­mated 1,000 fewer sec­ond-hand homes will be sold in Ire­land in 2017. This in a mar­ket ex­pe­ri­enc­ing un­prece­dented de­mand for hous­ing stock.

Bud­get mea­sures

Bud­get mea­sures taken to­wards the end of 2016 were broadly de­signed to in­cen­tivise builders on the sup­ply side and these would ap­pear to have worked. The con­tin­u­ance of the Help-to-Buy scheme and eas­ing of Cen­tral Bank mort­gage re­quire­ments have en­sured strong de­mand for sub­ur­ban new homes built on around 100 sites this year.

The flow of new homes to mar­ket is ex­pected to fur­ther im­prove next year, so much so that some an­a­lysts an­tic­i­pate a slow­down in cur­rent gal­lop­ing price rises as the ad­di­tional stock feeds pent-up de­mand.

How­ever, many of the new homes schemes are of the more ex­pen­sive va­ri­ety where builders are cer­tain they can sell, and they fall short of the “starter home” pro­file re­quired to ad­dress the needs of this co­hort. Next year will see a major push into the greater Dublin area as first-time buy­ers com­pro­mise com­mute times for more af­ford­able new homes in these ar­eas. Sound fa­mil­iar?

Mort­gage ac­tiv­ity

Ac­cord­ing to fig­ures from the Bank­ing & Pay­ments Fed­er­a­tion Ire­land (BPFI), for the third quar­ter of the year 9,506 mort­gages were drawn down to a value of ¤2 bil­lion. This rep­re­sents a 16.9 per cent in­crease in loan vol­umes on the year, and an in­crease of 18.9 per cent on Q2. Loan val­ues are up by 29.4 per cent on the year.

While mort­gage draw­downs con­tinue to rise, the num­ber of buy­ers seek­ing mort­gage ap­proval also con­tin­ues to rise. How­ever, a mis­match is emerg­ing be­tween those look­ing to buy and those able to find a prop­erty and se­cure a pur­chase given the scarcity of prop­erty avail­able for sale.

Bridg­ing fi­nance

The ab­sence of bridg­ing fi­nance is also a major is­sue for home­own­ers seek­ing to trade up to big­ger homes. De­spite know­ing they will find a buyer, peo­ple are re­luc­tant to sell when they don’t know where they are go­ing to next. With so much com­pe­ti­tion for the lim­ited stock that’s out there buy­ers don’t want to run the risk of selling their own home only to strug­gle to se­cure a new home, while in the mean­time be­ing forced to pay ex­or­bi­tant rents in sub­stan­dard ac­com­mo­da­tion. Bridg­ing fi­nance would take these buy­ers through this process but lenders are still not pre­pared to take the risk in the cur­rent mar­ket.

Cash buy­ers

Cash buy­ers re­main a major force and ex­ert a dis­rup­tive in­flu­ence on any macro­pru­den­tial ef­forts to con­trol the mar­ket. In Septem­ber, Cen­tral Bank gov­er­nor Philip Lane said cash buy­ers were lim­it­ing the reg­u­la­tor’s abil­ity to con­trol house prices be­cause they com­prise more than half the pur­chases in the res­i­den­tial prop­erty mar­ket. Ac­cord­ing to fig­ures com­piled by Sav­ills, in­vestors ac­count for a lit­tle more than a third of all cash sales and it’s no sur­prise when they can achieve gross yields of 6-7 per cent. It’s a bit of a no-brainer when set against the neg­li­gi­ble re­turns for money sit­ting on de­posit.

Con­trary to the pop­u­lar nar­ra­tive that res­i­den­tial prop­erty in­vestors are quit­ting the mar­ket in their droves due to the oner­ous costs of re­tain­ing a rental prop­erty, the yields speak for them­selves and the rental mar­ket is grow­ing all the time.

Par­ents also con­tinue to dig deep for kids strug­gling to buy a first home and meet the 3.5 times in­come mul­ti­ple for prop­er­ties in Dublin. An av­er­age sec­ond-hand home for ¤400,000 in Dublin is beyond the reach of many would-be buy­ers and par­ents are step­ping in to get them over the line. In the sec­ond quar­ter 11 per cent of cash buy­ers were first-time pur­chasers. When it comes to a sale it’s an un­fair real­ity that the cash buyer will trump the young mort­gage-funded buyer ev­ery time.

Up­per-end sales

At the up­per end of the mar­ket some ven­dors may have fallen foul of soar­ing prices in the crowded lower end. The real­ity is that where sub-¤600,000 prop­er­ties are achiev­ing strong sales within weeks, the same is not true of the ¤1 mil­lion-plus mar­ket. Ven­dors launch their prop­er­ties with high ex­pec­ta­tions, or even worse, are de­lay­ing selling their homes in an­tic­i­pa­tion of a huge pay­ola fur­ther down the line. The real­ity is that these prop­er­ties are prov­ing sticky to sell and don’t al­ways sell or achieve the ask­ing price. Agents will say it’s down to un­re­al­is­tic ven­dor ex­pec­ta­tions; we would ar­gue that sell­ers need agents to man­age their ex­pec­ta­tions, while also achiev­ing the best price pos­si­ble for them.

Build costs

De­spite the ap­par­ent mar­ket de­mand, builders and de­vel­op­ers con­tinue to ar­gue that build costs re­main too high to make eco­nomic sense. And a re­cent report from the So­ci­ety of Char­tered Sur­vey­ors Ire­land found that it re­mains un­vi­able to de­liver af­ford­able medium-rise apart­ments in Dublin – a much needed prod­uct in the cur­rent mar­ket. Mean­while any dreams of build­ing high like many of our Euro­pean coun­ter­parts were dashed when it emerged that the higher the build the greater the costs.

The va­cant site levy in­tro­duced in the Bud­get may do some­thing to re­lease at­trac­tive de­vel­op­ment sites to the mar­ket and in turn drive down some of the build costs.

Look­ing ahead to 2018 there is lit­tle in­di­ca­tion price growth will slow un­less suf­fi­cient stock is made avail­able to meet mar­ket de­mand, and in fact dou­ble-digit price growth re­mains on the cards for next year. How­ever, in­creases in mort­gage draw­downs, a healthy pipe­line of new homes schemes and trans­ac­tion growth are all vi­tal signs of a healthy functioning mar­ket and a small step closer to nor­mal­ity.

‘‘ When it comes to a sale it’s an un­fair real­ity that the cash buyer will trump the young mort­gage-funded buyer ev­ery time

Danes Hol­low, Thor­manby Road, Howth, Co Dublin: ¤8.2m

In­nis­cor­rig , Coliemore Road, Dalkey, Co Dublin: re­gion ¤8m

West­port house , West­port, Co Mayo: re­gion ¤5.5m

Straf­fan lodge, Straf­fan, Co Kil­dare: re­gion ¤3.4m

Gorse Hill, Vico Road, Killiney Co Dublin: ¤9.5m

Bal­ly­ma­coll Stud , Dun­boyne, Co Meath: ¤8.15m

Fin­tragh, 11 Shrews­bury Road,Dublin4:¤8.45m

Ouragh, Shrews­bury Road, Dublin 4 : ¤5.6m

Loughtown Stud, Don­adea, Co Kil­dare: re­gion ¤3.2m

The Lan­den­stown Es­tate, Sallins, Co Kil­dare: re­gion ¤4.6m

Newspapers in English

Newspapers from Ireland

© PressReader. All rights reserved.