'Apartment market is trading at unattractive prices for investors'
Ireland's biggest private landlord, Ires Reit, has warned that the prices now being paid by investors for blocks of apartments to serve the rental sector are excessive.
Commenting on the outlook for the property market in its latest interim report, the company says while it is continuing to evaluate new acquisition opportunities, it believes "that the multi-residential [apartment] market is currently trading at unattractive prices".
While the company offered no specific examples of apartment developments or the prices being paid for them, it only recently lost out along with numerous other investors to the German fund, Patrizia, in the bidding for 319 build-to-let apartments currently under construction by the Cosgrave Property Group at Honeypark in Dún Laoghaire, Co Dublin.
Patrizia's reported bid of around €132m saw off competition from Ires Reit, Irish Life, AIG, SW3 and Tristan Capital Partners. The price being paid by the German real estate giant equates to an average price of €413,793 per apartment.
Based on the Honeypark portfolio's anticipated annual rental income of between €7.17m and €7.84m, Patrizia can expect to see an investment yield of 5.5pc to 6pc.
While that return is still relatively healthy, it is significantly lower than some of the yields being achieved by Ires Reit on a number of apartment developments within its Irish portfolio.
Ires Reit's average gross yield across its total portfolio of 2,381 apartments is 6.6pc. The company's profitability grew by 25pc to €33.3m in the six-month period to the end of June as the amount of rent collected from tenants increased along with the value of its properties.
Ires Reit says it expects rents will continue to increase in the near term at least as lead indicators suggest "that a resolution of the housing shortage is a number of years away".
"With Ireland's economic outlook remaining positive, the path of least resistance for prices and rents still remains to the upside," the company said.