Massive €1m slump in value of D6 houses should attract canny buyers
There is strong anecdotal evidence that the decline is worse than official figures suggest, writes Jerome Reilly
Published 04/09/2011 | 05:00
IN May 2008, blue-chip auctioneering firm Douglas Newman Good confidently sought offers in excess of €1.55m for a "well-proportioned, mid-terrace Victorian home" on Waverly Terrace at the end of Kenilworth Square North on Dublin's southside.
Later this month two properties on the same leafy Rathgar street, both currently split into flats, will go under the hammer in a distressed properties sale.
One of the houses will have a reserve which will not exceed €240,000, while a neighbouring house has had its maximum reserve set at €380,000.
It's a price drop of €1m in a little more than three years on properties that boast a revenue stream which should, on the face of it, attract canny investors who have cash.
Rathgar remains a sought-after locale for young professionals who want to rent not far from the city centre.
The sale in the Shelbourne Hotel on the 23rd of this month is the third disposal of distressed properties in the capital since spring. In all, 74 residential and commercial properties from all over Ireland will be on offer at knockdown prices.
The sale may give a better assessment of the real state of the property market than the official figures released last week by the Central Statistics Office. They showed that prices throughout Ireland fell by 12.5 per cent in the year to July 2011, down slightly from a decline of 12.9 per cent recorded in June.
"This means the peak-to-trough decline in property prices is now 42.5 per cent," said Davy chief economist Conall MacCoille.
"Prices have fallen 9.2 per cent in the first seven months of the year."
Overall, residential property prices in Dublin have lost almost 49 per cent of their value since the peak reached in February 2007. House prices have fallen by just under 47 per cent over the same period, and apartments are just over 54 per cent lower, according to the official figures.
But there is strong anecdotal evidence and "real-life" figures reflected in the rock-bottom bids accepted for distressed properties which suggest the decline is actually worse than the official figures in some sectors of the market.
According to a new report compiled by Frank Conway of personal finance website Moneycoach.ie, homeowners who bought at the peak of the boom could be paying off their mortgages for another 14 years before they reach a point where they have repaid enough to take them out of negative equity.
It is estimated that up to 350,000 mortgage-holders are in negative equity, where the value of the loan is greater than the property's value.
Mr Conway suggests it could be 2025 before many of those who bought during the property boom escape negative equity and many of the major lenders are upping their variable rate mortgages, with KBC the latest to hike their rate by 0.25 per cent.
The decline in Irish property prices is now nearly a worldbeater. Only Bulgaria suffered a bigger decline in property values in the first three months of this year.
Last week Alan McQuaid, chief economist with Bloxham Stockbrokers, gave a gloomy prognosis for the immediate future suggesting that, given weak labour market conditions and the continuing lack of available bank credit, it was hard to be optimistic about the property market.
However, Mr McQuaid did find room for optimism in the medium term.
"The bottom line is that the property market remains very 'soft' at the moment, and is likely to remain that way for some months to come. But looking further ahead, we think house prices should increase on a five-year view as the labour market improves.
"That said, the level of any rise over the next few years is only likely to be in low single digits as banks adopt a more cautious stance to lending than in the Celtic Tiger era, interest rates return to 'normal' and the introduction of a property tax for 'principal' homes of residence all weigh negatively on the market."
And there are other factors that will also stymie a recovery in house prices. High unemployment looks like being a feature of the Irish economy in the medium term at least. Higher emigration means the pool of buyers is smaller while tens of thousands of properties in every county in Ireland are built but vacant.
Confidence, a key driver of the property market, remains at rock bottom.
It's hard to see a recovery anytime soon.