Where are we now
2010 was a tough year for the Irish Property market, as was widely anticipated. Property prices fell for the fourth year in a row. Recorded drops for 2010 were 11 – 14 per cent, depending upon which source you choose to believe, none are entirely accurate. It is difficult to assess the average drop with any degree of accuracy because of the lack of available house price data; however, it appears to be in the 40 – 50 per cent range. The painful reality is that it is in the national interest to have realistic and sustainable property prices. What was not anticipated was the further political turmoil, continuing banking scandals and the sheer scale of the IMF bailout.
I hear daily commentaries from professionals and non-professionals, some calling the bottom of the market and other extremists lamenting that we may not see it for another generation. From my work on the ground, I find that there is no single answer. Certainly, the market as a whole does not appear to have levelled out but the widely accepted position is that the property market looks closer to stabilising now than it did in early 2009. To be perfectly honest, I have some difficulty with that statement. It is much too simplistic a view of the hugely complex market dynamic. In Ireland, there is no single national property market. There is a huge variance in terms of area and property type; therefore, even taking a regional view will be largely irrelevant or inaccurate.
Local is where it’s at for would-be buyers. My advice for buyers in 2011…Stop looking at general statistics (national or regional), research then interrogate the specifics and think local. For example, three bedroom houses in Blackrock hit their lowest price in the Summer and early Autumn of 2009 and have been recovering ever since, whereas neighbouring Stillorgan was a good nine to twelve months behind this trend due to a higher supply of houses. Nearby Sandyford has not to my mind reached this point yet and, with its stock of poorly built apartments, is likely to record further decreases throughout 2011. For buyers researching this particular area in south County Dublin, this distinction will not be made clear and resulting decisions will be made in flawed data. This situation arises in every single area around Ireland. For this reason, it is essential to research on an extremely local level to ensure value.
There can be no doubt that property was no longer sexy or fashionable in 2010, but for many, it remained and continues to be a natural fact of life. As time moves on, life continues. People graduate, start their careers, get promoted. Relationships form, progress and evolve. Homes are necessary, renting is rarely cost efficient or satisfying beyond early adulthood. Ireland has a culture of home ownership that transcends economic forecasts and fear-mongering. Our need to acquire has driven us to favour houses over apartments, regardless of how plush that apartment might be. Logical reasoning tells us that land, however small the plot, will always be more valuable than an interest in mid-air.
After many years working with buyers I have yet to be convinced that buyers have embraced apartment living. As the stock of available houses runs low, my theory will be tested. I expect that apartments will be acceptable only after houses have risen outside the budgets of home buyers.
The high point of 2010 for many home buyers was reform of the Stamp Duty regime by the present government. This move introduced stamp duty for all but at substantially reduced rates, thus, bringing first-time buyers into this net for the first time. It was a positive move for all other buyers and it is hoped that it will help to stimulate the trading-up market.
Supply and demand
Traditionally, residential demand in Ireland was for approximately 40,000 homes. During the boom years, new units constructed reached an unfathomable 90,000. According to Homebond, a mere 1,680 new homes were registered in 2010 (3,337 in 2009). This is positive in the short term, particularly as there is no longer any incentive to buy a newly built property, but it is positive only if the stall in construction is temporary. Future construction must then be in line with proven demand, not just in terms of volume but more critically, property type.
There has been a notable lack of planning or more accurately, misguided planning in this country, particularly in urban centers, which has led to a skewed demand/supply model i.e. an excess of apartments rather than houses irrespective of buyer preferences. Simply put, as a nation, we did not build homes that fulfilled the needs and desires of home buyers. As already mentioned, Irish home buyers, and to a certain extent investors, favour houses to apartments. There are many reasons for this, practical, historical and cultural. This is unlikely to change in the short term but innovative professionals are trying to come up with creative solutions to marry the differences going forward.
NAMA as a source of Property
NAMA, the National Assets Management Agency, now controls an ever-expanding portfolio of residential and commercial property with an estimated 6,000 completed dwellings in Dublin and it will be necessary for this agency to become a driving force in the market. It is not good enough, either for the state or tax-payers, for NAMA to sit back and wait for the economy to lift the market. The hopes (and financial future) of the nation depends on effective disposal of assets, NAMA needs to show some early ‘wins’ for the people of Ireland. A teaser action appears to be inevitable at this stage, in addition to other planned impaired asset auctions.
Looking forward into 2011
Looking ahead, there are many threats to the fluency of the property market in 2011. The aim of property buyers in the past was to make money, whereas now it is not to lose it.Unemployment looks set to remain high, consumer confidence is still low, restricted access to credit for many, increasing personal income taxes and uncertain interest rates are some of the likely challenges that would-be buyers will face. To my mind, one of the greatest threats to the market this year will be the fear factor. Meeting with new or experienced buyers on a daily basis has given me some insight into their fears. Yes, the uncertainly in the market is preying on the minds of would-be buyers, however, when pressed, it would appear that buyers are terrified of the financial risk, in particular, the fear paying more than the property is worth and finding themselves in negative equity. Significantly, they are afraid of the appearance of financial mismanagement and ultimately looking foolish or being ridiculed in the media similar to the way home buyers and amateur investors during the boom were.
The key to motivating buyers to return to the market lies in improving confidence, confidence in the value to be achieved, confidence in the service professionals and most importantly, confidence in the reliability of the available market data. Unbelievably, despite years of petitioning and lobbying from all sectors of property industry, the Minister for Justice and Law Reform failed to introduce an amendment to the Property Services Bill to establish a National House Price Register. Unless this amendment is enacted prior to the outgoing government leaving power, we are unlikely to see progress for another year at the earliest. This is a disgraceful state for estate agents, buyers’ brokers, buyers and sellers to be left in and has undoubtedly set the market back even further. This also means that property valuation system in Ireland will continue to be as reliable as the long range weather forecast! For our part, Buyers Broker will continue to lobby government on behalf of property buyers to achieve this essential legislation.
There are several acceptable methods of valuation of residential property in Ireland. None are infallible. For our part, Buyers Broker are endorsing a multi-faceted valuation based on the fall in prices from the peak, the total stock sitting on the immediate/local market, the likely yield on property and the average price per square meter.
Buyers who are ready, willing and able to enter the market must strive for value. They must ensure that they future-proof their purchase by researching well and negotiating hard. For those committed to buying this year, there are outstanding opportunities available.
So, who will be buying homes this year? Unsurprisingly, since the budget announcement in December 2010, first-time buyers are taking their time to consider their options and re-think their finances. In the meantime, families trading up are set to dominate the middle market in 2011, thanks to the stamp duty reform in part.
Ultimately, while it might sound trite, buyers must keep a sense of perspective and acknowledge that we are in a cycle. Cycles, by their very nature, are generally only apparent in retrospect. We will not know the nature of this current cycle until it has passed and sufficient time has lapsed to allow us to analyse it and draw conclusions. Historically, for what it is worth, the global market eventually catches up with the value. Unfortunately our celtic tiger was sprinting at such a pace that it overtook the real market and continued to race until it ran out of steam.
– Carol Tallon