Wednesday 17 January 2018

Property market could be heading for another bubble - Banking Inquiry

John Moran, incoming managinbg director of Jones Lang LaSalle
John Moran, incoming managinbg director of Jones Lang LaSalle

By Clodagh Sheehy

Warnings that the property market could be heading for another bubble have been made to the Banking Inquiry.

The cost of office accommodation in Dublin is reaching an “unsustainable” level, said John Moran Director of Jones Lang LaSalle estate agents.

He agreed with the chairman of the Banking Inquiry, Ciaran Lynch, that this was a “warning light flashing at the moment”.

Mr Moran said he was quite concerned that we “could be getting” to a bubble stage.

Marie Hunt executive director and head of research at CBRE Ireland also agreed: “Of course we’re going to have another property bubble because we’re in a cyclical market.”

Replying to questions from Deputy Michael McGrath Mr Moran described as a “major concern” the lack of affordable office accommodation in the capital and “probably even more important, the lack of affordable rental accommodation”.

Commercial rents were now running €50-€55 per square foot and “we would rather it didn’t go over that level” if Ireland was to remain competitive, he stressed.

The current prices were similar to those in 2005 when his company began to warn clients about the danger of the market overheating.

Mr Moran, whose company was joint agent for the sale of the Irish Glass Bottle site in Dublin at the height of the boom for €412m, rejected any criticism for the high sale price.

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

Asked by Sen Michael Darcy if this sale had contributed to the boom-bust cycle, Mr Moran said “I do not apologise for that for one moment”.

His company offering advice in that case was “no different than if I was selling a three bed semi on behalf of a private individual”.  His job was to maximise the sale.

He added that if the price had set a bench mark it was probably at the end of the boom cycle and so probably had a “limited impact”.

Regarding property tax breaks Mr Moran told Sean Barrett he doubted that development of IFSC would have been successful without them.

Breaks for other developments like holiday villages and particularly hotels, however,  led to a proliferation of developments in “some very obscure locations”

The problem was fuelled by a government which kept announcing the breaks would end and instead kept extending them.

The Director heavily criticised town planners for being “equally culpable” as the banks in fuelling the property boom with  “extraordinarily lax”  decisions and towns trying to outdo one another.

This “led to complete and totally unsustainable development” he said.

Mr Moran said they had concerns in the first quarter of 2007.  They anticipated price drops of 5-15pc but “certainly did not anticipate 70pc (drop) in commercial property and 90pc in development land”.

He had no doubt that developers became over optimistic and assumed increases in prices which his company felt were unsustainable.

He described to Deputy Joe Higgins how each time a developer bought a prime site the prices went up another 10pc and “that became the new benchmark”.

At the height of the boom, he stressed, property buyers were paying up to 50pc above  the prices suggested by financial advisers.

The amounts were 20pc-50pc above those advised by his company and “frankly we were quite unsure” how the buyers came to agree to these prices, he told the Banking Inquiry.

As key moves for the future Mr Moran called for a property expert to be appointed in the Central Bank and an expert panel including the CEO’s of big estate agencies to advise government.

Ms Hunt said there was now a scarcity of grade A office accommodation in Dublin so the scenario was one of  a huge surge in foreign direct investment and “effectively very little office stock for them to locate in.”

Warning about another property bubble she added “we are probably mid cycle now” but while interventions by government could minimise the impact there would always be a cycle.

Her company’s  research showed that at the peak of the boom developers accounted for 36pc of the investment spend, syndicates accounted for 26pc, private investors 20pc and institutional buyers 10pc.

“Had robust, reliable, timely and accurate data been collated historically and reviewed in the context of a national planning framework the scale of the downturn in the most recent cycle may have been somewhat less severe,” she added.

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