Sunday 23 July 2017

An uncertain vista for the private rental market

Agent View

Owen Reilly
Owen Reilly

Owen Reilly

Against a backdrop of global economic uncertainty, much-documented low housing stock and the government 'rent freeze' implemented at the end of 2015, the experience of our landlord clients was largely positive during 2016.

Rents agreed by our firm increased overall by between eight and 10pc between Q1 and Q4, while in Dublin Docklands we saw annual rent inflation of 12pc and a very strong average yield of 6.2pc. Average rents agreed by this firm of €2,359, €2,383 and €1,950 in South County Dublin, Dublin South City and Dublin City Centre compare positively to average rents of €1,855, €1,763 and €1,655 noted in the Daft.ie report published this week.

The outlook for 2017 is positive but we would welcome more modest rental growth. Large, purpose-built, student accommodation developments coming to completion this year will help free up apartments for young professionals.

On the sales side we dealt last year with an increasing number of investors - attracted into the market by strong yields and capital appreciation. Investors dominated the city centre apartment market in Dublin 1, 2, 4 and 8 last year where more than 80pc of the buyers with whom we dealt were investors, and where we observed that more than 75pc were cash buyers.

New legislation brought in at the end of 2016 that was aimed, among other things, at providing rent predictability for tenants, has however, added uncertainty to an already complex market. The legislation has 'capped' rent increases up to 4pc for three years within so-called 'rent-pressure zones'; in all things but name, this is rent control - with huge implications for the private property market and private rental sector.

Monthly rent is now associated with properties not tenants, meaning rents now are no longer a matter of agreement between landlord and tenant and have nothing at all to do with market dynamics. Already we have found ourselves marketing an apartment for a client at below market rent.

This, naturally, has huge implications for the capital value of properties and already we are seeing clients planning to exit the market - unnerved by the intervention and the uncertainty related to future income and future capital gain. In order to be able to achieve market rent, it is clear that an increasing number of properties will be sold vacant - an effect that must certainly be the opposite of what the Government intended.

When it comes to selling, while demand from investors continues, for the time being, to be strong, it may be that this will create a whole new opportunity for first-time buyers - for whom new rules on residential lending came into effect on January 1.

While private landlords are unfairly targeted for the shortage in Dublin of affordable rental properties, this problem will be solved only by additional housing stock.

Owen Reilly is director of Owen Reilly estate agents

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