Real deal: The business of property
Published 15/05/2016 | 02:30
Time to invest in the investors.
To the amazement of all and sundry this week, figures released by Daft.ie confirm the fact that rents in Ireland are now higher than they were at their peak in 2008. The average national rent is €1,006 per month. This figure has been on the rise since 2014 with annual rents increasing year on year by 10pc. Be under no illusion, this figure is going to continue upwards for the foreseeable future.
A normally functioning market in Ireland has three fundamental requirements, sufficient numbers of social/affordable homes, an annual supply of approximately 25,000 new housing units nationally and an adequate supply of private rented accommodation.
The role of addressing the homelessness and social housing crisis has been handed to the freshly appointed minister Simon Coveney, and with the housing waiting list at 140,000, it should keep him busy while preparing the promised '100-day housing strategy'. The supply of new housing is still playing catch up and even though the 25,000 required annually won't be achieved this year, it is expected to be up on the 12,000 units reached in 2015. Whether first-time buyers can secure finance is a separate issue.
Finally, we have a significant ongoing need for rental accommodation through private investors who contributed just 5pc of the €5bn total borrowed for housing in 2015. Currently 31pc of us live in rented accommodation and, if we stay in line with international trends, that percentage will rise. Private investors whether individuals or property professionals are a vital cog in the property wheel and if this is not addressed urgently, this crisis will only deepen. They must be encouraged back to the market, albeit in a controlled manner. While the priorities remain the provision of homes for the underprivileged and first-time buyers, it'd be remiss of the Government to ignore the importance of the private investor.
Country back in vogue?
During the downturn in the housing market, country homes were high up on the casualty list. In fact, I would say that decreases in value took second place only to development land which decreased by over 90pc in value. In the country homes market, those worst affected experienced decreases of up to 80pc, according to Marcus Magnier of Colliers International. "The market today is in a more positive frame of mind with many properties having experienced a rebound of 30pc from their lows of 2012, but this doesn't necessarily follow through once the price exceeds €1m."
One issue that's concerning purchasers is Brexit and most UK buyers are likely to sit tight until post Referendum.
The market in 2016 has seen a number of prime country homes and trophy properties come to market (see 10 Most Expensive Country Homes on page 4) including Westport House, Castlehyde in Fermoy (Michael Flatley's palatial home) and Glin Castle in Limerick. While the market has improved, a real challenge for purchasers can be sourcing finance as lenders are less keen on this type of security with little or no regular return or income likely and the only likely upside being capital appreciation.
As a result, many such properties are purchased without finance. According to a report just released by Savills, 85pc of their country homes sales over the last three years have been cash transactions. The single biggest deal in each of the last three years was a cash deal from either a UK or US-based purchaser. According to Harriet Grant, head of Country Homes in Savills: "Buyers at the top end of the spectrum highlight location as a top priority." Where do most potential purchasers want to buy? Within striking distance of the largest cities, with the two most popular counties being Wicklow and Cork.
According to another long-time specialist in country homes, Robert Ganly of Ganly Walters: "The dominant factor in the market for country houses is the strength of the overseas buyer. There was a lack of stock at the start of the year due to the record sales in 2015."
Overall, it seems, the market remains positive with real value available to those with the readies.
Paul Hannon's new home in New Homes
The demand for new homes in Cork is second only to Dublin nationally. In each of the last five years there has been a shortfall in the delivery of new homes in Cork city of up to 800 units. A gentle recovery is at last under way with planning application figures already up significantly in 2016, albeit off a low base. Alongside this and, as highlighted last week, a large land bank owned by Cairn Homes, which was purchased as part of Project Cleare last year, is now being marketed and attracting significant interest from both local developers and further afield. The average price of a typical three-bed starter home in Cork ranges from €260-310,000, depending on its location.
No doubt, Sherry FitzGerald has noted this growth in the market - they announced the appointment this week of Paul Hannon as director of New Homes, Cork. Paul will work alongside Sheila O'Flynn, who has led the Cork business for 17 years, and Ivan Gaine, who is head of New Homes nationally. With 15 years at Lisney in development services, sales and strategic property advice, Paul has many years' experience in the property sector in Ireland. He also spent four years with an international development company specialising in mixed developments in both the UK and Ireland.
Interest rates sliding downwards - slowly
Two of the main residential lenders in the Irish marketplace, AIB and KBC, announced reductions to their variable lending rates this week. Even so, the rates in Ireland still fall well short of those in other European countries.
Take the new AIB variable rate which will be 3.4pc from July 1, a figure of over 3.4pc above the base EU lending rate of 0pc. Compare that with the current Bank of Ireland rate of 4.5pc. The average variable rate in the main EU states currently is 2pc, while Ireland's average variable rate is in the region of 4pc. Most of the major lenders in Ireland are now back in profit and open for business again. In recent years, Irish banks seemed to be looking to lend only to cast-iron low-risk borrowers. The appetite of the banks is healthier than it was 24 months ago but they are still being stymied by the onerous Central Bank borrowing requirements.
We will probably continue to see further reductions of between 0.1-0.3pc in rates over the coming months from all the lenders because of increased competition in the Irish mortgage market as new providers enter the market, pressure from the Central Bank, and the healthier financial position banks now find themselves in.
The ECB rate, which currently hovers around 0pc, is expected to stay at this level for the short to medium term to limit deflationary pressures in Europe. For every 0.25pc of a reduction on a 25-year €300,000 home loan, repayments reduce by €41 per month.