A year of highs and lows
– Carol Tallon
After an uncertain last quarter to round out 2014, the Irish residential market starts 2015 at the top of the Knight Frank global property rankings for price growth. This comes a mere six years after the historic market crash that decimated the domestic market. Property prices had been increasing in the Dublin area since 2012– it is only in the last year that this recovery has spread nationwide – however, it now appears from the latest daft.ie report that house prices have dropped 1 per cent in the last few months. This might sound confusing but in reality, it is good news. For the first time in a long time the market is behaving as it should; it is reacting appropriately to lower levels of demand and persistently restricted access to credit, resulting in less investors and cash buyers – from over 60 per cent of all transactions to now less than 35 per cent. This is what a functioning market is supposed to do; it has simply been so long since we have had a functioning marketplace in Ireland that we appear to have forgotten that there are some basic economic rules and principles that still exist. There remains an oversupply of the wrong type of property in the wrong areas and a chronic shortage ofthe right type of housing in the right areas. With little or no new housing stock expected throughout 2015, a slackening off in the marketplace is an appropriate market response, as is increased construction activity. What was never appropriate was first-time buyers overpaying for ‘investor’ apartments and small houses, this contributed to the disproportionate and rapid price increases and the crisis in the rental market. A return to market norms, whatever they might be in our new, post-crash market, is a good thing for buyers and sellers.
However confusing, this recent reported price drops need to be looked at in relative terms; for instance, the overall national average price increase for 2014 was 16.3 per cent, with Dublin house prices up 24.1 per cent. The surprise performers of the last 12 months have been Dublin apartments, which recorded overall price hikes of almost 27 per cent, year on year. That makes the average drop in prices since the peak in early 2007approximately 42.5 per cent.
Although recovery is now coming at a much faster pace than previously expected, a certain amount of that gusto was pent up homebuyer demand and residential investors trying to buy up properties before January 2015 in order to avail of Capital Gains Tax, or CGT, waivers. As we move into 2015 and look forward, much of that demand will have waned.
As cash purchases have almost halved, 2015 needs to be the year that owner occupier mortgages become accessible again, and not just to the cherry-picked, lucky few. The latest Central Statistics Office (CSO) report shows that while mortgage lending is still at 1977 levels, the volume of residential mortgage issued in 2014 has increased 40.3 per cent year on year. This is a phenomenal increase and translates into approximately 24,000 mortgages issued in total last year; however that figure is still well below peak volumes of 114,600 – not that that comparison has any relevance in today’s market. Despite the increase, mortgage lending is still at exceptionally low levels, less than one-third of what a functioning mortgage market should be. With home-buyer sentiment outside the capital finally improving, greater access to mortgage funding should return some element of predictability to the Irish market in general.
What buyers can expect in 2015
We continue to wait for Central Bank clarification on new lending rules and when any changes will apply. Perhaps it is too much to hope that a reasonable approach, with a phasing in period will apply rather than a blanket doubling of the deposit amount required for the majority of home-buyers.
The important thing to note about the rising house prices outside of the capital, is that these rises are coming from exceptionally low levels in many areas around the country so perhaps the best test of local market recovery is the volume of transactions taking place. The total number of residential sales nationwide for 2014 is running at close to 40,000 (based upon Q3 figures adjusted), this compares with a figure of less than 30,000 for 2013 and 25,000 in 2012.
As expected, Dublin has seen the lion’s share of activity, as has the commuter belt – with the exception of Carlow. Kildare in particular has thrived over the past eighteen months, both for sales and rental properties. Elsewhere, the home-buyer trend towards turn-key, modern houses, less than 15 years old and close to amenities is leading to a shortage of suitable family homes in most areas at this stage. However, it is important to note that this is not reflective of supply and demand in the marketplace but rather evidence of popular preference. This is, in part, driven by the mortgage companies which favour single drawdown, rather than allowing the mortgage to be drawn down in stages – as seen during the boom years – which would enable buyers to purchase and then renovate older properties. A simple change in lending policy to phased drawdown would open up a whole new market of dilapidated homes that are currently selling across the country for as low as €20,000, well below even the site value. This change also would halt the further decimation of rural areas. While it is tempting to start building again when faced with genuine housing shortages, making use of existing buildings, either to upgrade them or change them so that they suit the needs of today’s homebuyers, is the more efficient option outside of the capital. We cannot return to building in areas where no demand exists simply because development sites are cheap, this was a huge factor in what went wrong before. Without doubt, we need to get building kick-started again (although we know from a quick scout through local planning applications that this process has started), however, all new development must be of the type that buyers today want and in the areas where those buyers wish to purchase.
Finally, buyers in 2015 will certainly face less uncertainty than their recent predecessors; however, they still need to be sure of their requirements, both in the immediate future and in the longer term. The concept of a starter home is no more; buyers need to understand that any property purchase should suit their needs in the long term.
The Irish Property Buyers Handbook 2015, with a special chapter on Finance contributed by Karl Deeter of Irish Mortgage Brokers, and with bonus chapter on the RIPPLE shipping container build willl be available from 26th January 2015. Ebook also available.