Monday 25 September 2017

'Captive market' for landlords as investors grow

Dr John McCartney, Savills head of research
Dr John McCartney, Savills head of research
John McCartney
Mark Keenan

Mark Keenan

INVESTORs are squeezing out first-time buyers in the scramble for homes, and now account for almost a third of all Irish property purchases in the past year.

Investors are now the single largest purchasing group in the Irish market, up to 32pc from 23pc 12 months ago.

Their unprecedented rise has largely been at the expense of first-time buyers (now at 28pc) and private home owners seeking to trade up (25pc), according to the data in the Savills World Research Report.

A big spike in investor activity in the last quarter of 2014 was caused by a rush to buy property before capital gains tax relief expired at the end of last year.

But it has also emerged that the Central Bank's new insistence on 20pc mortgages for homes over €220,000 and a 3.5 times income to loan ratio will force more families out of the market, particularly in cities.

At the same time, investors are also likely to be "pushed" into the market by forthcoming quantitative easing measures from the ECB, which will reduce earnings on savings, according to Savills director and head of Irish research Dr John McCartney.

"The Central Bank measures have now created a captive market in Dublin for landlords," he said.

"Even though rental returns are also falling, it's a relative game - and with interest rates likely to be almost nil and Dirt tax at 41pc, those with money will be pushed into acquiring investments like property.

"Mid-last year we would have expected investors to peter off following the expiry of capital gains relief at the end of 2014.

"But the changes which have taken place since October last are likely to maintain the investor in the position as the leading buyer type through the year ahead."

It is the first time since the Savills research began in 2012 that investors have become the dominant buyer type when compared against those trading up, trading down and buying for the first time.

The report also showed that cash buyers, who had been in decline, have once again increased their share of market transactions - from 49pc in Q3 to 53pc in Q4.

According to Dr McCartney, around 50pc of cash buyers are investors.

While investors increased their shares of home purchases by almost 10pc, those trading up from a smaller homes saw their share of Irish home deals diminish from 38pc to just 25pc by December last. This was caused by tighter lending.

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Meanwhile, increasing property prices and a further tightening of lending means that first-time buyers are taking longer to save up for a home.

"Twelve months ago we predicted that buy-to-let activity would taper off during 2014 as residential property yields continued to squeeze lower," he added.

"Indeed this trend was clearly evident in the first three quarters of the year.

"However as shown, there was a surge of buy-to-let activity in the closing months of 2014 and more than half of all investor sales in the year took place in Q4."

Irish Independent

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