Tuesday 12 November 2019

Trophy homes sign of Dublin's wealth magnet

Aryzta boss Owen Killian
Aryzta boss Owen Killian
Owen Killian's Shrewsbury Road mansion
Richard Curran

Richard Curran

The Dublin trophy house is truly back. House prices in the capital have been growing at a very rapid rate, but it was pretty shocking to read that in 2014 there were 389 properties in the capital that sold for over €1m.

The Central Bank may be worried that banks will lend out too much money to first-time buyers, but there are no such worries at the top end of the market.

It is one thing to have major venture capital firms buying up hotels, golf courses, office blocks and shopping centres at bargain prices from Nama and the banks. But it is a totally different matter to have so many people interested in buying a house in Dublin for that kind of money.

There are always going to be a handful of super wealthy people, even in a post-bailout Ireland, who have the money to pay several million euro for a trophy house. But 389 paying over €1m is a startling number.

Who are these buyers and how can they afford it? Experts say many of them are wealthy Irish executives who live abroad and plan to return to Ireland soon or at least spend time here in the coming years.

There are a couple of categories buying. The first group includes people such as TV billionaire John Malone, who bought Humewood House in Wicklow for €8m and is tipped to purchase Tony O'Reilly's Castlemartin in Co Kildare for over €20m.

This is a man making commercial property investments while also acquiring some properties he happens to like. Malone loves property in general and land in particular. He is the biggest private land owner in the US where he owns 2.1m acres.

Another grouping among the buyers are those spending €2m to €7m. They include Irish executives such as Aryzta's Owen Killian, who recently bought a house at No 2 Shrewsbury Road for €6.5m. It had been bought just ten months earlier for €4.6m by an Irish investor based in the US. That was an easy €1.9m bagged by that mystery man.

Greencore boss Patrick Coveney is another buyer. He bought a house in Ranelagh for €3.6m during the summer.

You can find 20 or even 40 big house purchases like that. Shrewsbury Road and Ailesbury Road once belonged to the wealthy professional classes. Then the old industrialists took it over. During the boom it was dominated by the property developers. Now it is reverting to the new industrialists, the likes of food and technology executives.

These guys tick the boxes for Irish companies that have succeeded internationally in sustainable sectors. Coveney's Greencore might not even employ many people in Ireland anymore, but it started out as an Irish company. Aryzta started out as IAWS and is now a sizeable global player in its sector, while listed on Zurich stock market.

But it still doesn't explain where the money for the other 300 or 350 of these €1m-plus purchases came from.

Other buyers will come from the ranks of senior executives who have worked for major American multi-nationals and they want to come home.

Plus there are those who have made money from the crash here at home. They bought property at the bottom; put together refinancing deals; gave legal advice; or bought a business cheaply in the crisis.

We can definitely rule out first-time buyers. If you had a 10pc deposit for a €1m house, you would need to borrow €900,000. If you got 3.5 x salary, you would need to have income of around €257,000 per year. Your monthly repayments would be €4,260. That comes after you have handed over your income tax, USC, property tax and the rest of it.

The trophy home bidders are mainly cash buyers of the very wealthy variety. In 2013 over half of all house purchases were made by cash buyers. In early 2014 that fell to around 50pc. By the summer it had fallen to one in three.

It is actually good news that so many of these €1m-plus house purchases are made by Irish executives living abroad. In the last boom, the top end of the housing market drove the rest of it over a cliff. But it did it through a credit-fuelled bubble.

The top end of the market this time round reflects more realistic prices made by wealthy investors using their own money.

In fact, mortgage figures for 2014 show that in the first 11 months of the year, mortgage lending was about 3pc lower than in 2013. There are only so many of these wealthy types with either Irish connections or an interest in Ireland, and they will dry up. It may even happen in 2015.

If these business people are buying trophy homes here, then they either plan to return to Ireland or at least spend more time here.

It won't do any harm to have a coterie of wealthy, high achieving executives, who may have emigrated in the past, taking a commercial or personal interest in Ireland.

Some people will say it typifies the two-tier society that is emerging after the crash. Sinn Fein might see it as a justification for a wealth tax or the imposition of further taxes on those earning over €100,000.

The reality is different. You couldn't buy one of these houses on €100,000 per year and those who can afford them, may not even be registered here for tax at all.

There are around 125,000 people earning over €100,000 per year in Ireland. Around 24,000 of those earn over €200,000. How many of those are already stuck in negative equity either on their mortgage or a series of bad boom time property investments? Quite a few I would think.

The real downside to this trophy home story is the difference between Dublin and the rest of the country. The two-tier society increasingly looks like one between the environs of the capital and everywhere else.

Dublin is consolidating population, jobs and wealth at a rapid rate. There were 389 property purchases of over €1m in Dublin in 2014. Yet there were only 11 in Cork. Just four of those were in Cork city. This may reflect a shortage of supply to some extent, but it is still a massively skewed picture.

Forget about trophy houses for a moment. Between January and November 2014, a total of €4.2bn of mortgage approvals were granted in Ireland. At an average loan to value of, let's say, 70pc, this would represent around €6bn of property purchases.

Some of these will become transactions in 2015, while others may not go ahead at all. But it is a useful indicator of intended activity.

In Dublin alone there were €4.3bn worth of houses and apartments sold in 2014. The capital is proving to be a magnet for wealth and for the economic activity that surrounds it.


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