Developers mask 15pc house price fall with 'incentives'
Sunday January 06 2008
A REPORT out this Tuesday by real estate giants CB Richard Ellis says that a 15 per cent drop in the value of new homes has been disguised through "incentives" offered by developers to prospective buyers to encourage them to buy properties.
The report also drives home the fact that Irish homeowners have seen the last of double-digit price growth.
The author of the report, Marie Hunt, said that the average price paid for a new home last November was €290,946, according to the Permanent TSB/ESRI house price index.
"The decline in the value of new homes last year was not really as evident as it was in the second-hand market," said Marie Hunt, director of research with CB Richard Ellis and author of the upcoming report.
"Developers gave incentives to get people to buy their properties instead of lowering the price of new homes. These incentives equated to as much as 15 per cent of the value of the property so in real terms, the value of new homes probably fell by 15 per cent last year. It is only this year that we will see the real effect [of the slowdown] on new homes."
First-time buyers who bought new homes last year arenow sitting on losses of as much as €40,000 because the property slowdown has knocked up to 15 per cent off the value of their homes.
This will push thousands more first-time buyers into negative equity this year, where they owe more on their mortgage than they would get if they sold their house.
Irish house prices will remain flat in 2008 and any price growth will be restricted to single digits in 2009, according to the report.
"The days of double-digit house price inflation are well and truly over," said the report, which also found that land values have fallen by 20 per cent over the last year.
"The development land market continues to suffer from a slowdown in the Irish housing sector and the ongoing difficulties in obtaining banking funding," said Guy Hollis, managing director of CB Richard Ellis, Ireland.
"However, experienced developers who take a long-term view will fare well in this environment."
Hunt said that small developers will be squeezed out of the market this year because of difficulties borrowing enough money from banks to finance projects.
The number of house completions will fall to 50,000 this year, according to the report-- a development which will fuel further unemployment in the construction sector.
Last year, about 70,000 houses were built -- 30 per cent less than in 2006. In December, the Economic and Social Research Institute warned that unemployment could rise to 130,000 this year.
This year will also be a challenging year for rural pub owners and retail investors, according to Hunt.
"Several hundred rural pubs will close this year," said Hunt. "Dublin pubs will do okay, but the recent smoking ban and drink driving laws will push an awful lot of rural pubs out of business."
- Louise McBride
