Wednesday 21 February 2018

Banks fret over Gas works sale

The sale of the landmark Alliance apartment building in Dublin's docklands indicates that the values of even the best-quality properties have fallen by almost 70pc, while poorer quality properties have experienced even greater price falls.

Estate agents Savills is quoting €43m for the Alliance Building, which contains 202 two-bedroom apartments and eight one-bedroom units. With an annual rent roll of €3.25m, that equates to a yield of 7.5pc.

Longstanding property bears such as myself still remember Davy economist Rossa White's (no relation) March 2006 paper on the rental yields implied by the price of houses in Dublin's better-established suburbs.

These ranged from just 1.4pc in Sandymount to 2.4pc in Terenure, while he estimated that yields from property in Dublin's docklands were running at 3.2pc.

Fast forward almost six years and rents are down by a quarter from peak levels. When this reduction in rents is combined with the increase in rental yields, it can be seen that the value of the Alliance Building has collapsed from about €135m in 2006 to €43m today -- a fall of 69pc. And that assumes that Savills secures the full asking price.

However, it is what the sale of the Alliance Building tells us about the health of the overall property market that is most disturbing.

If even a very high quality property such as this, with 97pc occupancy, has seen its value fall by almost 70pc, what does it say about all of those tens of thousands of poorer-quality properties, both residential and commercial, out there and the banks that have lent against them?

Sunday Indo Business

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