Saturday 3 December 2016

Irish property and politics warnings for investors

Fears of post-election instability and chronic housing shortages

Published 16/12/2015 | 02:30

Return of consumer confidence and spending welcomed by specialist bank Investec
Return of consumer confidence and spending welcomed by specialist bank Investec

Concerns about whether a stable coalition can be formed after the election and the "chronic" shortage of housing are among the chief risks facing Ireland, investors have been warned.

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Specialist bank Investec said that while it is "relaxed" about legacy issues, there are a number of new risks that require careful attention.

"Opinion polls suggest that the centrist political parties are gaining ground but, given how fragmented the political landscape is, it remains difficult to see a stable coalition emerging after the election, barring a further shift in party support levels," said Investec economist Philip O'Sullivan.

"Domestically we would also be concerned around the chronic shortage of residential properties in the key urban centres (our previous concerns around the office market have dissipated on the back of a healthy pipeline of development activity).

Finally, as a small open economy Ireland is not immune to external events, so we would be cautious if the broadly favourable trends in the currency and energy markets were to reverse and/or if there was a growth shock in one or more of the country's key trading partners."

But Mr O'Sullivan said that even if some of the risks do occur, the economy should be robust enough to produce growth rates that would be "the envy of most EU member states".

In its latest assessment of the economy, Investec said it sees GDP expanding this year by 7.1pc, an upgrade to its earlier forecast of 6.1pc, with 2016 growth of 5pc.

"This latest upgrade is mainly down to stronger than expected growth in investment this year. Ireland remains on track to be the fastest growing economy in the EU in both 2015 and 2016," Mr O'Sullivan added.

Investec's note to investors comes just days after German financial power house Commerzbank told investors that Sinn Féin in power would be a risk to Ireland's "phoenix from the ashes" recovery. Sinn Féin, however, rejected the bank's assessment.

Investec said the economic upturn had facilitated a meaningful reduction in legacy issues, with mortgage arrears falling, Nama having redeemed almost three-quarters of its government-guaranteed senior debt, and a reduction by 99pc in the financial sector liabilities covered by the ELG scheme.

"One of the main highlights of this year has been the continued recovery in consumer spending. On an annual basis, retail sales have posted 24 successive months of growth in both value and volume terms, led by consumer discretionary sectors," the Investec report said.

"Consumer confidence recently improved to a 10-year high on the back of the improving economic prospects. Debt paydown and rising asset values have resulted in a €159bn upturn in household net worth from the trough to the current level of €600bn."

Irish Independent

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