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Irish still bullish on foreign 'trophy' buys

WEALTHY Irish investors are continuing to invest in overseas property, with deals of €1bn not unusual -- but they will have to pay more attention to risk and accept lower returns, they were told yesterday.

Enda Faughnan, tax partner at PwC Real Estate, said he saw Irish investment syndicates continuing to snap up "trophy" property deals, particularly in the UK and "old Europe," but also across the globe.

"The Irish market simply cannot satisfy demand for these kinds of trophy deals -- hence the move towards increased investment internationally. With new investment products and structures, there are significant opportunities but they are not coming without their threats," he told PwC's real estate business breakfast.

The consultants still rank Paris and London as offering the best reward/risk opportunities in Europe. The German cities of Munich and Hamburg have shot up the list to fourth and ninth respectively, but Madrid fell three places to seventh.

"Real estate will continue to be an attractive asset class for Irish investment, but with an increased focus on the underlying fundamentals -- that is, lower risk and lower return opportunities," Mr Faughnan said. He sees a continued move to emerging markets such as Asia and Eastern Europe and, recently, to Latin America.

"In response to this demand, numerous boutique firms and banking divisions have evolved, specialising on an exclusive basis in finding international property 'products' in which the bigger investors can invest.

"We expect the Irish will continue to be big players in the international property market, in terms of property development and investment, but structuring choices can make a significant difference to the after-tax return," he said.

Meanwhile, research by Goodbody Stockbrokers indicates that although rental yields have been rising lately they are still not high enough to prompt renewed investor interest in residential property investment.

Economist Dermot O'Leary has calculated that it will take two years of strong rises in rental yields to match the current cost of capital, assuming European Central Bank rates remain unchanged.

"However, if the ECB hikes rates to 4.5pc, it would take four years for the rental yield to match the cost of capital," he said in a research paper.

The estimates only apply to new investors, Mr O'Leary explained.

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