Saturday 25 November 2017

The estate agents' view: why we don't want a boom

Keith Lowe tells why an overheated market is a danger

Keith Lowe, CEO of Douglas Newman Good
Keith Lowe, CEO of Douglas Newman Good
Mark Keenan

Mark Keenan

A booming property market is bad news for estate agents.

* Despite shortages, an Irish home building boom could be dangerous at this point in time - and what's more we don't need as many houses as some statistics suggest.

* Rural areas will experience the most price growth in the next two years.

* The Central Bank was right to implement its new its loan control measures.

These are certainly not the views the public would expect from a Dublin-based estate agent - not least, the boss of one of the country's two biggest chains and property franchises.

But Keith Lowe, CEO of Douglas Newman Good (DNG), likes to shake up perceived views on the property market, especially when he believes that his own company's research highlights coming trends, which are not widely perceived in the rest of the market - why the paper he will deliver at the forthcoming 'Housing the Next Generation' conference will generate interest.

Lowe is a statistics buff and has invested heavily in the DNG research department from which he forms many views on where the Irish property market is headed next.

Being right with the numbers, and also running a rule over accepted research from elsewhere, has always been important for DNG under Lowe - who likes to ensure he has the clearest picture possible of what is going on in a sector that can sometimes become obfuscated by the number of trend and price barometers it produces.

Many forget that DNG was among the first to publicly furnish statistical evidence of falling house prices back in late 2006, when Dublin prices had stalled and had begun to weaken.

The steady development of its research wing has helped ensure that DNG can plan well, helping to ensure that it not only survived the worst property crash in a generation, but has also manage to increase its reach from 14 Dublin branches in 2004 to 75 nationwide branches today.

Lowe spikes the view long held by the public that estate agents rub their hands in glee when property prices surge.

"We've had prices increasing in Dublin by 24pc in the last year (DNG research), and this is simply unsustainable.

"If it continued, it would mean that we'd ultimately end up with a market that swings down again at some point. Therefore, that sort of level of increase in prices is not good for an estate agency business like ours. We'd much prefer prices to be rising slowly but steadily - at a rate of 5pc to 10pc. In fact, that's exactly where we see Dublin prices going each year for the next two years - and we're quite happy with that."

Unusually for those with vested interests in the property sector, he is generally supportive of the Central Bank's recent moves to control lending.

"I don't believe the Central Bank measures affected Dublin prices that much. I think CGT (capital gains tax) pushed prices ahead of what was normal in the last quarter of 2014.

"While the bank measures may have some impact in the short term, I think the end of year deadline for capital gains tax relief was the key cause of the slowdown in prices by causing them to surge artificially at year's end. This meant they were bound to fall back a bit in the early part of the year.

"While our figures show that small price decreases have been experienced of late, I think the fundamentals remain strong and indicate that prices in the capital will rise through the year, by probably single digits."

On the CGT deadline front, Lowe says there were more than 5,000 extra in Q4 last year compared with Q4 in 2013.

"Meantime, our own sales were up 30pc on the same period the previous year. But as for the bank measures themselves, I think they're generally a good idea in the medium and long term, and will help prevent the market from overheating. But we have to remember that most of the houses in Ireland are priced below the €220,000 mark."

The relative low value of homes in rural Ireland is why he believes the rest of country, outside of the cities and the east coast to midlands region, is headed for a sustained period of high price growth going forward.

"The cost of building a house is a problem as prices are not high enough to make new schemes viable. According to our research, a house needs to sell for around €190,000 in order for it to make a reasonable 10pc profit for the builder and for its construction to be commercially viable.

"For a two-bedroom apartment, which is more expensive to build, that crucial value measurement rises to €250,000 and for a two-bedroom apartment with an underground car park that rises again to €275,000.

"While prices like that are now achievable in Dublin, it will be a long time before they get to that level in other parts where it could be five years or more before construction of new homes becomes viable.

"This means, in the absence of new construction for a long period, prices in the rest of the country have to rise significantly. We estimate these areas will see prices rise by about 15pc to 20pc per year for the next two years - albeit, remember, from a very low base."

Lowe reckons that new building regulations have added an additional €30,000 to the cost of building a standard three-bed semi in Ireland.

As the boss of one of Ireland's largest property businesses, he also has some surprising opinions on supply of new homes to market, again backed by the company's in-house research.

"I have to say that I am concerned at the big numbers that are being put out there in terms of the numbers of homes we need, and we have to be very careful that we don't run into an oversupply as a result.

"A lot of people have come out with different reports on how many homes we need going forward. I put most credence in the report produced by Future Analytics, which was commissioned for the Housing Agency. It says there is a requirement for 7,500 units per year in Dublin - this year, it looks like we will have 6,600 - and that we will need 12,800 this year, nationwide.

"These numbers suggest that we're not actually that far off building what we need. Some reports have been saying we need 30,000 houses per year, but look at it realistically - there were 42,000 houses sold in the whole of Ireland last year. Who would buy all those homes?"

Lowe also alleges that the demise of the cash buyer is being called early and that their recent participation in the market might be underestimated.

"From January to December 2014, there were 42,936 sales transactions. In all, 20,155 were mortgage funded. Cash or other sources accounted for 22,781 - a 53.1pc majority.

"When we look at the money spent according to the property price register, then we see that €9.27bn was spent in total last year, of which mortgages accounted for €3.66bn and cash or other accounted for €5.61bn - that's 60.6pc of the value of the total spend was in cash. I think we can account for this by saying that a massive amount of investment purchases has been taking place. I do believe that's going to peter off as time goes on. But the CAO statistics don't take cash buyers into account."

He also cites job patterns as a big influence. "While employment is up in Dublin, the mid east and the commuter belt, what many don't seem to fathom is that big parts of Cork, Kerry, Limerick and North Tipperary are still seeing a fall.

"It means that people are likely to follow the jobs and even more are set to move to the capital going forward. That's another reason why prices in the capital will likely remain stable."

Indo Property

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