Business Irish

Saturday 16 December 2017

Wilbur Ross junks Irish property bubble claim with €400m punt

Cashed in his Chips: Wilbur Ross. Photo: Mark Condren
Cashed in his Chips: Wilbur Ross. Photo: Mark Condren
Sarah McCabe

Sarah McCabe

THE IRISH property market is nowhere near bubble mode, according to influential US investor Wilbur Ross.

Mr Ross, who days ago announced his intention to invest in Irish property after selling off his entire stake in Bank of Ireland, has denied that the market is experiencing unsustainable price rises.

His comments come in contrast to a growing body of data that suggests massive, bubble-like price rises in the capital over the last year.

Estate agents Douglas Newman Good's latest House Price Gauge suggested house prices in the capital have risen by 23pc in the last 12 months as demand exceeded supply.

"It is not remotely at the bubble levels" Mr Ross told the Sunday Independent.

"What is happening is that especially in Dublin and Galway there is more turnover of real estate and the prices have begun to recover from their former extremely depressed levels – but are not yet approaching the old peaks."

The number of homes being bought in cash is "surprising" and indicative of conservative lending policies, he said.

"It is hard to imagine a bubble without reckless lending and there is no sign of that. In the single family home market the loan to value ratios [the amount borrowed in comparison to the total cost of the property] are low, and a surprising number of purchases are all cash. It also is hard to have a bubble without continued over-building, and that does not appear to be happening yet."

The US billionaire dominated business headlines last week after it emerged he will pocket upwards of €400m in the sale of his stake in Bank of Ireland. His flagship investment fund acquired an interest in the lender in 2010, as part of a consortium of North American investors who bought up 35pc of the bank only months after Ireland signed up to an EU/IMF bailout.

Shares in Bank of Ireland traded at around 10c at that time; Mr Ross sold his stake last week for 26.5c. He also stepped down as a non-executive director, citing EU legislation which prevents a person sitting on the board of more than three banks.

Two days later he unveiled his plan to invest in Irish property. His fund WL Ross and Irish investment house Cardinal Capital have signed a joint venture which aims to raise €400m for residential and commercial property deals.

The joint venture will make "mezzanine finance" investments, a relatively risky form of investment that bridges the gap between a loan and pure equity. A mezzanine provider typically charges interest but unlike traditional lenders is well back in the queue to be repaid if a deal fails.

Discussing the boom-time property bubble, Mr Ross laid the blame on "illogical" decisions which he sees no sign of today. "During the bubble there were a number of large residential developments undertaken in illogical locations where there was no local population growth of any consequence and no reason to expect inbound migration from elsewhere in Ireland or from outside Ireland.

"Many of those projects will revert back to being farmland and never should have been conceived as anything else.

"I do not see such projects springing up at present and doubt they would be financeable in today's environment."

Sunday Indo Business

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