Wednesday 26 October 2016

It's very rare - and very confusing - to witness prices rising and falling at such different rates across the regions

Published 18/04/2015 | 02:30

38,000 homeowners at least two years behind on mortgage payments
38,000 homeowners at least two years behind on mortgage payments

IF you found the Irish property market confusing in the first place, look away now, because it's going into bamboozle hyperdrive.

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While the country has always been divided into regions of different performance, it is seldom that we see prices both rising and falling at such disparate rates and in so many different regions.

For example, what exactly is going on when semi-d prices in Skerries in North County Dublin are falling at a rate of 6.5pc over a three-month period, while at the same time they are rising by 2.5pc two miles away in Balbriggan?

One theory could be that Balbriggan's cheaper homes are now being sought by those with six month expiry laiden Pre Central Bank ruling mortgage approvals from last year. In contrast those in more upmarket Skerries may have overshot their values before Christmas thanks to an investor surge in turn caused by the expiry of captial gains relief in December.

The unorthodox snapshot that the REA Average House Index shows us reflects a number of different geographical market blocks moving at different points in the cycle, but with at least two artificially induced temporary distortions thrown into the mix. First a value snapback from the end of capital gains tax relief in December - which brought a stampede of buyers in parts of Dublin and an artifical surge in values which is now being corrected.

Second comes the Central Bank's new rules on mortgage lending, which again will largely affect only Dublin and commuter counties - but no one really knows how. While the confusion it initially caused value-damped parts of the capital late last year, do we know what happens when we have six-month mortgage approvals (under pre regulation terms) in search of affordable homes in places like Tallaght and Balbriggan before expiry?

Still with me?

Now hold on to all that for a second and next consider that the REA believes that Ireland's property market can largely be defined by three "Tiers" currently all moving at different stages in the cycle anyway.

What it calls "Tier One" - Dublin City and County - was first to recover from the crash and is probably a year ahead in the cycle of "Tier Two." It is likely (but don't hold me to it!) that Dublin will resume steady single digit growth once the recent distortions are removed thanks to shortage, population and hiking rents.

"Tier Two" comprises the commuter counties around Dublin as well as Cork and Galway Cities (Kilkenny might also fit) - the next areas to recover from the crash and probably eighteen months into recovery. Shortage is also in effect in these areas largely down to restrictive planning.

To confuse further, Dublin's commuter counties are also seeing an injection of "price refugees" from the city competing with locals for their limited family housing stock.

Finally "Tier Three"comprises largely rural Irish counties. Many of these began recovering within the last year only but are now springing back from crash era value wipeouts of as much as 70pc. They're coming up from that by now famous "very low base."

Take Longford where the price of the semi leapt by 37.5pc in the last year but you can still buy one for €55,000. The problem here is that this price is an awful long way away from the €220,000 the REA estimates a builder has to achieve for a home today in order to make a profit.

This is because of yet another curve ball variable thrown into the mix - the increased cost of building materials over ten years coupled with upgraded building regulations that require a much better standard of home which obviously costs much more to build. So residents in rural towns which might have had a ghost estate or two on their periphery for donkeys years woke up one day to find the homes suddenly sold and occupied and now there's nothing for sale, nothing being built and definitely nothing coming down the pipeline for the foreseeable future.

They're understandably confused... you're confused and I'm confused!

Irish Independent

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