Rise in sales of ‘off-plan’ homes fuels bubble fears
We’re now in danger of repeating mistakes that caused the crash
HOUSE-HUNTERS are buying ‘off-plan’ again for the first time since the property crash, fuelling fears of a return to reckless boomtime practices.
Buying straight off-plan was a key feature of the Celtic Tiger era and the first signs of its return to the fragile property market has stoked fears that the country is on the cusp of another unsustainable housing bubble.
News of the worrying trend comes after Bank of Ireland last week launched a new mortgage product that includes the payment of stamp duty for first-time buyers.
Industry sources predict other lenders will be forced to offer similar incentives to hold their market share.
As prices continue to soar in urban areas, young married couples in particular are now snapping up homes in new developments before a brick has even been laid.
“The norm is a booking deposit of €5,000 — and between €15,000 to €20,000 contract deposit,’’ one property expert told the Sunday Independent.
Analysts say they are taken aback by the speed at which buying off-plan has returned to the market since the beginning of the year.
David Browne, head of new home sales at Savills, told the Sunday Independent that people are buying off-plan at a rate not seen since 2007.
“The beauty of buying from plans is that your price is set. You’re then able to save until the house is built,” he said.’
The lack of house construction, particularly in the Dublin area, is one of the key factors for rapidly rising prices.
Some experts believe the return of buying off-plan will encourage developers to start building some much-needed large-scale housing developments in the coming months.
Mr Browne added: “Buying off-plan really took off around November and December. We’re also seeing a return of ‘the investor’, who had disappeared for a long time.
“They’re mainly looking for high-end apartments in Dublin and are ex-pats from the London region. They’re either buying for their kids, or looking to return home in time. They look on the purchase as an investment.”
This trend chimes with a new study which says that Dublin will be the second most attractive market in Europe for investors over the coming months.
The report, carried out by the Urban Land Institute and PWC, found investors are becoming increasingly uncomfortable with incurring excessive risk in search of a return on their money.
“One of the biggest beneficiaries of this is Dublin, which has risen dramatically in the city investment rankings, from 20th last year to second in 2014,” the report said.
Dublin’s real estate market has been transformed from a no-go location among investors two years ago to one of the hottest in Europe. The report found that 51 per cent of respondents see good buying opportunities in Ireland.
Glenn Burrell, of Finnegan Menton property consultants and auctioneers, also confirmed a “significant upswing” in off-plan house purchases.
He said the company sold a development of 16 semi-detached houses off-plan in just six weeks last January.
Holding deposits of €5,000, along with a €20,000 contract deposit, were put down for each four-bedroom property, valued at between €285,000 and €395,000.
In a previous phase last year, he sold 23 off-plan houses in the same location. “These people didn’t even see a show house,” Mr Burrell said. “They just jumped straight in.”
He also suggested that now banks have started to increase their lending, it will push up property prices by up to 15 per cent this year.
“From 2008 to 2010, mortgages weren’t being approved. Now there is a mortgage market out there — although you have to be a decent customer,” Mr Burrell added.
“I think people on the borderline aren’t going to get a mortgage for a long while, but if a couple have two good jobs, then they have a really good chance.’’
Lisney's director of residential, David Bewley, said: “I just sold apartments off-plan at the Merrion Hotel in Dublin. They will be built within the next two years, but we needed people to come in first and say they would buy them, before we could go ahead with the development.
“We weren’t going to build on a speculative basis.
“They were launched at the end of January. We have sold eight apartments and have three left. The two-bed apartments are between €1.5m and €2.5m. The ones we sold were to Irish businessmen and they were all cash buyers.’’
However, property analysts urged buyers and lenders to adopt a cautious approach and avoid a repeat of the reckless practices that led to the 2007 crash.
TCD Professor of Finance Brian Lucey told the Sunday Independent: “Anything that adds fuel to the fire of house prices in Ireland should at minimum be looked on with exceedingly cautious eyes. As we crawl out of the wreckage of the previous crash, we should be very careful.”