Paul McNeive: Take advantage of investment opportunity
In my first column in January I advocated buying property as an investment this year. Yields are attractive, stamp duty is low and there is a great CGT break if you buy this year and hold for seven years.
Just five months later the investment market has taken off like a rocket in Dublin, and with values down say 50pc from the peak, more investment properties are being sold now than at any time in the boom.
But what should the canny investor be looking out for?
A first principle is to be clear why you are investing, because you will be looking for different things depending on whether you are buying for short-term profit or investing for your pension.
When buying for your pension you must think critically about what the property will look like in 20 years. Some properties physically deteriorate quicker than others, and properties in your pension should be in prime locations and always lettable.
Be clear on your tax position– don't pay a premium late in the year just to get the CGT break, when a property bought through a self-directed pension fund has that CGT break anyway.
The more prime the location the better. Be very careful about buying into a commercial investment in an unlikely location just because the yield looks high. When that tenant leaves your gains will erode very quickly as the property lies vacant.
Once you're convinced that you should buy prime, then what type of property should you consider?
Office investments are in demand and I'm keen on this sector. Shortages of space are developing in prime Dublin locations, rents are increasing and there's room for growth. Offices are easy to manage, especially modern blocks. Most incoming IDA 'manufacturing' projects occupy office buildings instead of factories and this will underpin the market. Prime yields are about 6.25pc.
Retail property is sought-after, but assess the tenant very carefully. Top names are failing and tenants are looking at their leases for ways to reduce rent. I don't see rental growth for at least a year.
Be careful where the tenant is a subsidiary company rather than the parent, as some tenants are prepared to take the insolvency route to renegotiate rents. Prime yields are about 6pc.
Industrial property is the 'Cinderella' of the market but can present good value. Yields are always highest because factory and warehouse buildings tend to become obsolete quickest.
Warehousing tenants won't consider lower buildings, which then go into a downward spiral of lower-value industrial processes. Prime yields are 9pc.
Residential investment has been a surprise package, with some overseas buyers looking for larger, multi-let blocks.
Management charges are high and reduce prime yields to about 6pc. Unless you are buying something large enough to merit employing a management company you will be at risk of late-night calls from tenants with leaky immersions.
For the best potential profit to maximise that CGT break, zoned land is the option. But you'll need lots of courage and lots of cash, as you'll have no income.
Agents BNPPRE have a free new guide to investing in Dublin. My final advice – employ an expert.