It would appear that property investing is back en vogue. Although in truth, it never really went out of fashion, rather, we could not talk about it. But, following last month’s broadly positive Budget announcements, the floodgates have opened for investors once again; Minister Noonan held up the proverbial white flag to would-be buyers across each spectrum of the market. It is time to start again.
Investors were already keen to take advantage of the Capital Gains Tax relief prior to December 2013 so to have this relief extended by a further 12 months takes the pressure of those already interested and is sure to encourage a further raft of cash buyers. In advance of Tuesday, I felt that it was either sheer genius or sheer lunacy for Allsop Space to hold their latest bumper auction on the same day as Budget 2014 but surprisingly, it turned out to be neither. Investors in the room – and it certainly was mainly investors this time out – were not even slightly reluctant to buy at 11am, pending Budget announcements several hours later. In fact, bidding got off to a strong start with many properties achieving almost double the reserve prices, albeit very low reserve prices.
When Davys recently heralded the start of a new property cycle, in a way, it was the announcement many were waiting to hear. It implied that the Irish market was back in business – back at lower levels in terms of value and volume, back with little access to credit domestically, back with bruised and battered (but still willing) investors but back nonetheless. Experienced players in the market did not wait for any bottom to be called, they know from experience such clarity is only ever retrospective. Might late 2011/early 2012 have been the turning point for Dublin? I certainly believe so. Has that turning point been reached in every part of Ireland? In my opinion, no. But, all things being relative, we must take the positives where we can.
So what do the latest cohort of investors even look like? Well, so far they range from cash buyers spending €16,000 on a three bed semi-detached investment property in Portlaoise, to the farmers buying back soon to be re-zoned agricultural lands on the outskirts of every village and small town in Ireland, to the multi-millionaire stake -holders of Real Estate Investment Trusts (REITs) buying up entire developments in prime areas. And the market can support them all, but only for a limited period of time. The investors I spoke with at the above multi-lot auction this week were all in search of a bargain and most had been waiting for the right opportunity to buy within the Capital, before realising that Dublin prices are simply rising too quickly. They are now moving their focus to other key areas, starting within their own regions. For many looking now, the lure of commercial property is difficult to resist. The buy-in costs are interestingly low, the locations usually better than the outskirt housing estates and if a tenant is likely, the yields are much stronger than residential in regional areas. Of course the return, or in practical terms, the tenant is the key variable here. The return is either nil or 12% plus, there is no in-between. Such investments make sense for business owners who might have a use for the premises or who can attract a known tenant. As mentioned the returns are good; the risk is as good or as bad as your tenant and more importantly, the managing and maintenance are much less onerous than residential lets.
Of course, all of the above is based on an assumption that the investor has money. While I accept that limited credit is available to investors at the moment, in my experience, it is only extended to those investors who are not actually reliant upon it to proceed with the deal. It is akin to the old banker who lends an umbrella when the sun is shining. The most frustrated investors that I am meeting at the moment, are those who see the opportunities in the market but are not in a position to raise finance. But is that the only way? Looking at overseas buying models and tracing the origins of U.S. property millionaires like Donald Trump et al, lack of money might not be an obstacle to securing a property. Rent –to-buy schemes were prevalent three and four years ago (actually, we have no data on the success of such schemes throughout the crash and tentative recovery – I would love to hear of any experiences, good or bad) but maybe some version of this, like lease options or protracted closings, might be a mutually beneficial arrangement for buyers and sellers. Just last week I logged into an interesting lease option webinar (a seminar delivered over the internet, thoroughly modern!). Many strategies were discussed and there was a sense that not all options would work in the Irish market, however, I spoke to a few sellers this week and their positive reaction surprised me. In fact, a few told me that the certainty of a two, or three or even five year lease at market rate, regardless of whether the property was ultimately purchased, would ease their current burden and satisfy their lenders. The rental portion is relatively straightforward; the purchase/sales aspect is more complicated. If such an arrangement means committing to today’s sale price, the advantage for buyers is clear but if I was the seller, I might not be so keen. However, it is important to acknowledge that we are in an evolving market and it is simply not helpful for regional sellers to have their property languish on the market for years. We need to look further than the traditional methods of buying and selling. It is happening within every other industry, why not property? Maybe now is the time to invite new solutions into the marketplace.