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Thursday 27 October 2016

New property price index highlights investor muscle

John McCartney

Published 25/09/2016 | 02:30

Dr John McCartney is director of research at Savills
Dr John McCartney is director of research at Savills

The revamped Property Price Index, which was launched on Wednesday, shows that the collapse in Ireland's housing market during the recession was slightly deeper than previously thought and that the ensuing recovery has been somewhat stronger.

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However, while these insights are important, they are not the story. The more critical point is that this new index puts in place a piece of statistical infrastructure that will benefit Ireland for years to come. Because of the improvements that have been introduced, analysts will be able to better understand the dynamics of the housing market, and this will enable policy-makers, households and businesses to make more informed decisions.

Behind the scenes, the new index captures greater detail on property characteristics. This ensures a more standardised basket of properties between time periods, improving the accuracy of measured price movements. In addition, the new index provides better market coverage. Because its predecessor was based on mortgage data, it completely missed cash sales which account for about half of all housing transactions in Ireland.

The revised index, which is predicated on stamp duty data, does not suffer from this problem. As well as making the index more representative, this results in a greater number of data points which facilitates a finer slicing-and-dicing of the data. The most obvious benefit is greater regional disaggregation. The old index was broken down into just two geographies: Dublin and outside of Dublin. But, because the latter spanned such a huge and disparate area, price trends at that level were difficult to interpret. In contrast the new offering provides 11 regional sub-indices which shed light on price trends within distinct sub-markets such as the mid-east commuter belt.

A bonus of the new system is that it provides detailed information on who is buying property in Ireland. I have consistently argued that private investors remain very active in Dublin, and Wednesday's data confirmed this. Since the beginning of 2014 this group has accounted for 5,247 of the 34,322 market sales in Dublin - around 15.3pc of the total.

Some weeks ago I revealed in this column that 'block purchasers' have also accounted for a sizable share of Dublin transactions in recent years. Again, the new data showed this - 'Non Household Buyers', a group that includes private equity firms, property Reits, etc, bought 6,222 of the properties that traded during this period - 18.1pc of the total.

Between them, then, corporate and small-scale private investors appear to be behind approximately one-third of recent housing sales in Dublin.

  • Dr John McCartney is director of research at Savills and a former statistician at the CSO.

Sunday Independent

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