Market currently favours the small-scale cash buyer
At face value, the housing market has been fairly pedestrian in the first half of 2016; overall transactions are down by 5.6pc compared with the same period in 2015, while the decline in Dublin has been even sharper. However, some caution is required in interpreting these facts. Firstly, we must remember that the comparison period in 2015 was unusually strong. Fuelled by a rush to use the last of the old-style mortgage approvals, and by a carry-over of CGT-exempt investor purchases, more than 22,250 properties changed hands in the first six months of 2015.
This was always going to be a hard act to follow and although 21,000 transactions in the first half of 2016 represents a year-on-year decline, it is twice the average number of first-half deals that were done between 2010 and 2014.
A second qualification relates to block purchases of investment property. New research by Savills indicates that such deals accounted for more than 20pc of total transactions in Dublin between Q1 2012 and Q1 2016.
However, while investors' appetite for these deals remains strong, the market has run out of apartments that can be sold en bloc, meaning that block sales have fallen-off sharply in recent months. Factoring this in puts a rather different complexion on things. Excluding block purchases, transactions in the mainstream Dublin market have risen by 16.8pc year on year.
If this tells us that the underlying market is more active than we thought, it also suggests that things are beginning to 'normalise'. Partly because of large-scale block investment, cash purchases accounted for a majority of housing transactions in recent years.
However, with block sales now falling, cash dipped below 50pc of transactions in Q2 - only the third time that this has happened since 2012.
Conversely, a pick-up in mortgage drawdowns allowed traditional debt-funded purchases to partially fill the vacuum left by lower block purchases. Indeed, even stronger growth in mortgage approvals suggests that this trend is likely to be sustained.
With the proportion of cash buyers receding, logic suggests that tighter mortgage lending should now begin to bind more strongly on pricing. Indeed, house-price inflation slowed to just 1.1pc in Dublin during Q2 and was flat elsewhere. However, with residential property outperforming other asset classes, smaller scale cash investors will retain an influential weighting in the overall market for some time to come.
Unencumbered by lending restrictions, these investors have the incentive and firepower to drive prices further and, particularly in the cities, everyone else will have to compete with this.
Dr John McCartney is director of research at Savills