~ originally published in the Sunday Business Post January 27, 2013
Transparency in the property market is more crucial for buyer confidence than government initiatives
The first Central Statistics Office (CSO) residential property price indices of the new year issued this week and, I think it is fair to say, some market watchers were a little surprised. Prices nationally fell 0.6 per cent last month, with houses dropping 0.5 per cent whilst apartment prices rose by 2.6 per cent. Despite the significant slow-down in the rate of decline, this latest monthly decrease will dampen much of the positivity brought into the market by the previous months 1.1 per cent increase. True to form, this report appears to be at odds with the experience of most selling agents on the ground, who saw first-hand the first-time buyer and home-buyer surge in the latter part of 2012. Figures from the Department of Finance support this and have now confirmed that in excess of 3,000 home buyers had taken-up the tax relief on mortgage interest (TRS) in the last quarter of 2012, compared with just over a 1,000 in the first three months of the year.
These contradictory reports month on month can be interpreted in many ways. What this latest report does tell us is that the market is, for the main part, improving. This improvement will be gradual but could go into a reverse pattern at any time. Recovery is tentative and cannot be taken for granted, particularly at this vital stage. The timing of the latest report also makes us focus upon the reason for the surge in home sales before Christmas and there is only one – the ending of the TRS scheme.
A government incentive is exactly that, an incentive. If successful, it should encourage the recipients to do as the government would like them to do. In this instance, the TRS was extended and beefed-up in Budget 2012 to lure finance-ready, would-be buyers away from the fence. And, by and large, it worked. However, this incentive is now gone and its only replacement appears to be a three year exemption from paying property tax. There is a lot to be said for timing; For a couple purchasing a property in the €450,000 price range, this effectively replaces a €30,490 savings, if they had purchased in 2012, with a €1,912 property tax saving – all incentives are certainly not equal. In my opinion, the market is nowhere near being recovered enough for this. No hesitant buyer will become enthusiastic for the sake of €1,912 – Yes, it is a lot of money, but consider the risk and uncertainty. Is €1,912 enough to compensate for that? I think not. Ironically, €30,490 should not be enough reward to gamble a family’s entire future and well-being on either but that in a decision for each buyer to make.
Perhaps the incentive route is not the most successful policy for government to pursue. In the years before the publication of the national property price register, I met with buyers so confused and frustrated by the pro-seller/anti-buyer bias in the marketplace, that they would have happily swapped their TRS reward for clarity and transparency – they would have paid to know the true, achieved prices of property sold in their target areas. And now they do. The price register was the single greatest side-effect of this crash. The data may not have been too positive but it was real. This certainty is worth more than any incentive, so much so that I no longer bemoan the fact the nation waited for more than 30 years for it.
In much the same way as government cannot create jobs, their role is to create the environment that supports businesses to create the necessary jobs, the same is true for stimulating the housing market. No government initiative can truly make a purchaser make the leap, but their policy can go a long way towards creating the marketplace where the buyer feels confident about the long-terms prospects of taking this risk. There are many different aspects to this, ranging from security of employment right through to local schools and facilities. The common denominator of all these factors is confidence. If buyers have confidence in the external factors, then they will proceed when the time is right for them. Without confidence, they will not proceed, irrespective of family, job, lifestyle or incentives. One great example of how government can inspire confidence dealing with the market is the demolition, last year, of an un-used, unwanted block of apartments in a ghost estate in County Longford. This sent out a clear message that the Minister with responsibility for housing and planning, Ms. Jan O’Sullivan, is listening to what buyers want rather than trying to incentivise them to buy unsuitable homes in unsuitable locations. Who knows, maybe Nama will follow suit?
Looking forward for 2013, what can buyers and sellers expect? We are currently experiencing that lull in home purchases, which was expected, and which is expected to continue throughout February. However, investors are having a bit more success with securing funding through the pillar banks and a quieter marketplace will suit them for a few months. We have seen apartments within proximity to the capital improving so this might encourage Nama and the non-Nama banks to release more stock to kick-start the property year.