Families being massively outbid on new homes by funds, meanwhile rents soar

Figures compiled by BNP Paribas Real Estate show institutional buyers paid as much as 32pc more for each residence that they bought last year compared with the average price paid by household buyers in Ireland.

Large investors paid €2.27bn for almost 4,900 private rented sector (PRS) properties in 2021, an average of almost €430,000 a unit.

That is €104,206 more than the average price of €325,502 paid by households who bought homes in the 11 months to the end of November last year.

The funds can afford such rich premiums because the returns from renting out the properties are so high, according to John McCartney, head of research at BNP. “(They) believe that rents are well underpinned by existing market imbalances and Ireland’s demographic potential,” he said.

“Their funding models and investment objectives make them willing to pay high prices to access such secure income streams. Understandably, this is causing frustrations for private buyers who are attempting to compete.”

According to the research, more than three-quarters of bulk-purchased units in 2021 were bought by institutions that committed to deals in advance of the developers building the apartments.

Mr McCartney said those properties might not have been developed if those arrangements had not been in place.

The BNP analysis uses CSO figures for household purchases, which include both houses and apartments nationwide, while the PRS figures are focused mainly on Dublin apartments, which tend to be more expensive.

The premium is also influenced by the fact that new apartments are built with higher standards of insulation whereas the data on household buyers include a higher proportion of second-hand houses – many of which need refurbishment or retrofitting.

Nevertheless, a recent property price survey by the Institute of Professional Auctioneers and Valuers indicates a similar premium.

It shows that prices for two-bedroom apartments in Dublin averaged €329,967 in the second half of 2021.

This equates to a premium of 30pc over the average two-bed Dublin flat bought by a household.

The BNP survey also shows that US investors were the biggest buyers of Irish investment property in 2021, purchasing €1.34bn of office blocks, logistics facilities and rental apartments out of a total of €5.5bn invested in these assets.

However, US investors were also the biggest overseas sellers, divesting €720m of property last year.

Over the last five years, US investors have been net sellers, divesting €239m more than they have bought.

By contrast German investors have been the biggest buyers of Irish investment property in recent years, deploying nearly €4bn of capital since 2017.

“Risk-embracing US private equity funds were first on the scene after Ireland’s economic crisis, and were able to pick up distressed assets, including office blocks, apartments, and retail properties, at heavily discounted prices,” said Mr McCartney.

However, these buyers – known colloquially as “vulture funds” – target high returns and typically seek to exit their investments after 5-7 years to recycle capital elsewhere.

“As the Irish economy stabilised, recovered and then begun to outperform, a different breed of institutional investors was attracted to Ireland,” said Mr McCartney.

“These buyers, including pension funds and REITS, have lower costs of capital, are able to pay higher prices for stable rental income, and are here for the long-haul.”