Sunday 25 September 2016

Real Deal: The business of property by Philip Farrell

Philip Farrell

Published 14/02/2016 | 02:30

What do we do in the cold, dark months of winter? Why, browse property porn of course. This 11-bed house in Totteridge, just half an hour from central London, scored a high of 62,000 hits on property website Zoopla last month, showing just how many of us lust after high-end living. At just under £20m (€26m), you’d expect a few luxuries — and this mansion doesn’t disappoint. Included in the purchase price is a swimming pool and pool house, cinema and, pictured, bowling alley, all set in 11.5 acres of grounds with your own private golf course, water features, guest cottage and garage with staff quarters.
What do we do in the cold, dark months of winter? Why, browse property porn of course. This 11-bed house in Totteridge, just half an hour from central London, scored a high of 62,000 hits on property website Zoopla last month, showing just how many of us lust after high-end living. At just under £20m (€26m), you’d expect a few luxuries — and this mansion doesn’t disappoint. Included in the purchase price is a swimming pool and pool house, cinema and, pictured, bowling alley, all set in 11.5 acres of grounds with your own private golf course, water features, guest cottage and garage with staff quarters.

We are none the wiser as to the make-up of the next government, but one thing is for sure - the housing crisis is one of the primary election issues.

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We all know the rental sector is under real pressure. The same, however, applies to the first-time buyer's market. This housing shortage will continue for another 18 months as the market continues to play catch-up. The annual demand for new homes in Ireland stands at 25,000 units, and it looks like the actual figure to be built this year will be around 13,000, leaving a shortfall of 12,000.

This will continue to put pressure on prices in the areas of highest residential demand - Dublin, Cork and Galway cities and the commuter counties of Wicklow, Kildare and Meath. Peter Stafford, director of Property Industry Ireland, says: "The process is too long, bureaucratic and complex, especially in the planning system. Streamlining it would help improve supply to the market."

It's a situation that's forcing many people to postpone buying, which in turn will create a pent-up demand and volatility in house prices and ensure that the roller-coaster that is Irish property prices continues unabated.

Going to town has a whole new meaning

One of the global trends affecting property markets is that of urbanisation - the population drift to the largest urban areas, especially capital cities. The reasons are simple: these commercial hubs are centres of employment and education and sources of services or amenities for day-to-day living.

Figures from the UN show just how big a shift that will be, projecting that nearly all global population growth from 2016 to 2030 will be absorbed by cities - an anticipated 1.1 billion new urbanites over the next 14 years. Ireland's urban population has doubled since 1970 from 1.4 million to 2.9 million, which is more than 60pc of the population.

We now reside in a services-driven economy. The more labour-intensive industries are focused in the areas of highest population. The effect of the trend is being felt in both urban and rural areas with varying implications. In cities it is creating an increased demand for both rental and sale properties and it will also place an increased demand on transport infrastructure and public services. While the main focus will be on cities, the commuter belt also looks set to benefit as workers tend to gravitate towards their place of employment and families want to reside in the "burbs" for that sense of community.

Rural areas are seeing significant changes too. The number employed in agriculture has reduced significantly. The real downside for the sector is felt in social and cultural matters - as the rural population falls, inhabitants become more isolated and the economic gap between urban and rural grows. Those who live rurally will do so as a result of lifestyle choice, but they will be in the minority.

How do we compare?

From 1996-2006, the average price of a second-hand property in Ireland increased by 258pc. Incredible, but true. This was followed by a drop of up to 60pc over the following six years and an increase in property prices by an average 25pc in the past three years.

Some would say it was a lost decade in terms of house prices. The typical OECD fall in value was 23pc. The decrease means Irish prices are still around 33pc below our artificially high peak figures, but that peak was an anomaly. However, it all goes to show just how volatile our market is.

So where do we sit now in the European context of residential property values? Let's look at prime two-bed apartments in European capitals. After Monaco comes London, which is regarded as one of the top three financial cities in the world. In fact, London has experienced another sharp increase in property values of up to 25pc over the past two years. As a result, many experts anticipate a softening of values over the coming 12 months.

According to Global Property Guide, the value of a prime two-bed apartment in London stands at €25,500psm. The lowest value falls to the capital of Moldova, Chisinau, at €965psm. Ireland, with Dublin at €4,550 psm, is 13th on the list of 30. The market recovery in the past two years has lifted us from 15th. All very interesting, but if you can't secure a mortgage…

Cheaper mortgages

a number of parties have outlined their plans to enter the Irish mortgage market. The last entrant was Bank of Scotland in 1999. More recently, it is easy to see why Ireland is proving attractive. Base interest rates are historically low, hovering close to 0pc with another 12 months likely at these levels. However, lenders are currently charging rates in the region of 3pc to 4pc, making the margins appealing to would-be entrants. The Australian-owned Pepper Group has already announced its plans to service this market. What is it offering? Its initial foray on to the Irish scene was in 2012 when it bought the subprime lender GE Money. In recent weeks it has been rumoured that another likely new entrant is UK-based Kensington.

According to Michael Dowling, chairman of the Irish Brokers Association (IBA) Mortgage Committee, "these new entrants are most welcome; for example, the Pepper Group have introduced a product aimed at the borrower who may have encountered some minor financial difficulties during the downturn".

There are many thousands who fall into this bracket. It will be interesting to see how much traction this new competition will gain in the market in Ireland. Until such time as the deposit requirement and the 3.5-times-earnings requirement are amended, the mortgage market will continue to face stiff challenges. However, these will not remain indefinitely, hence the interest in the Irish market.

Sunday Independent

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