Sunday 22 April 2018

Property buyers paid up to 50pc above suggested prices during boom - Banking Inquiry

Clodagh Sheehy

Property buyers were paying up to 50pc above the prices suggested by financial advisers at the height of the boom.

John Moran, International Director of Jones Lang LaSalle financial and professional services firm said that the amounts were 20pc-50pc above those advised by his company.

“Frankly we were quite unsure” how the buyers came to agree to these prices, he told the Banking Inquiry.

Mr Moran described how the property market at that time was driven by the fact that Ireland had the fastest growing economy in Europe and effectively had full employment.

International buyers found the Irish market too expensive and 90pc of the major players here were domestic buyers, he said.

Values of commercial property increased by 72pc in the five years up to September 30th 2007 “which we define as the peak of the market”.

Prime office rents, he added, went up by 50pc to €60 per sq ft between 2004 and 2007.

The highest price of €155m per acre was paid for a site in 2006 compared to the values for the first quarter of 2015 of €35-€37m per acre.

Mr Moran said domestic banks provided the larges sources of funding and all of the major banks were actively lending.

Funding was available for “almost every type of property transaction whether it was for a pure investment purchase or a speculative development”.

Betwwen 2004 and 2008 almost €8billion worth of commercial investment property was sold in Ireland with a peak of €3.6billion in 2006 alone.

Most transactions were undertaken by private individuals or syndicates backed with funding from banks.  There were very few, if any cash purchases, he added.

“Overseas investors had a limited presence in Ireland during this time, as pricing had intensified significantly,making Irish real estate too expensive for international investors.

At the time Irish buyers were also buying across Europe and the world.  He cited a figure for 2006 where Irish buyers invested about €3.6billion in the UK and a further €2billion in the rest of Europe and the USA.

By 2007/2008 “we saw that there were risks in the market. As a consequence we advised most of our client base not to participate in the market on the buy-side and where appropriate we advised clients to sell”.

Mr Moran stressed, however, that he believed most people involved in the property market did not realise the extent of bank lending in the period up to the crash.

The collapse in value was also due to “an extraordinary confluence of global macro-economic events, combined with an over-reliance on debt in the property market”.​

The Inquiry was suspended just before 10.30am when one of the members , Senator Susan O'Keeffe, became unwell but with legal advice and the agreement of witness John Moran, Chairman Ciaran Lynch decided to continue the session without the Senator.

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