Sunday 17 December 2017

Real Deal: Property price rises are no surprise

The business of property

Wembley Park, London, near Wembley Stadium, is the largest single building project in the UK or Ireland and will provide 5,000 homes and office space
Wembley Park, London, near Wembley Stadium, is the largest single building project in the UK or Ireland and will provide 5,000 homes and office space

Philip Farrell

The myriad increased house price figures for Q1 that have emerged in recent weeks should come as no surprise. The results confirm what most active purchasers already knew, a notable increase in prices to date in 2017. These range from 1.8pc from Sherry Fitz to 3.3pc for DNG, 3.8pc for REA, with and, 5.4 and 6pc respectively.

It's important to note that the figures for portals, which are significantly higher, are based on asking prices. This simply serves to highlight the higher expectations from vendors who are also well aware of the increase in demand since the Government intervened in the market.

It will be interesting to see what the CSO figures for Q1 show. Even though they are based on the Property Price Register, they can't be regarded as definitive either as, while the information is factual and based on prices achieved, the average residential sale normally takes approximately two to three months to close once a sale is agreed. Theoretically, the CSO figures will then be out of date.

Ironically, the industry numbers for Q1 should be compared with the CSO figure for Q2. However, at that stage the Q1 industry figures will be out of date.

Confused? You're not the only one.

Supply increases but gap still widens

Throughout 2015 it was abundantly clear that the measures introduced by the Central Bank to control prices, which limited the amount that could be borrowed to 3.5 times salary plus a maximum of 80pc of the purchase price, had stalled the market. These measures had created barriers to entry for many would-be purchasers, mainly first-time buyers (FTBs). And the situation was not sustainable.

Minister Coveney's measures which came into effect in January have simply moved a large cohort from a holding position to an active position.

Supply will fall short of demand again this year. In fact, in 2017, the gap between houses delivered and houses required will be much greater than 2016, that is despite the fact that the number of new homes will be up at least 4,000 units on the previous year. There are, however, a large number of first-time buyers who are now in a position to buy. Without a doubt, this trend is likely to continue.

Until the time that the number of new homes exceeds 25,000-30,000 units on an annual basis, prices will continue to rise. It's important to remember that the numbers of new homes delivered from 2014 to 2016 were coming off a very low base as a result of the economic meltdown.

Back in 2006, 93,000 new homes were registered, which was a crazy figure. Last year it was just under 15,000, which was the other extreme. I'm not advocating a return to the dizzy heights of the last decade, but the difference between these numbers highlights the extent of the collapse.

In the future, Ireland is expected to have annual net immigration of 40,000 people. In addition, the rate of unemployment has fallen from 15pc to 6.4pc in the space of four years. Unless the Government rows back on its recent incentives for FTBs or an international crisis erupts like the Brexit talks breaking down, this country, unfortunately, is likely to experience increases in excess of 10pc in 2017 with similar rises likely again the following year. This is simply the result of demand being up to three times that of supply in some locations. It will be two years at least before the delivery of new homes will come close to the level of demand.

These predictions assume that the residential investor doesn't return to the market in the short term, a factor that would put additional pressure on prices. Ironically, though, the return of the investor is also vital to increasing the delivery of rental properties. The Government is clearly not delivering in this sphere, however, that is another day's work.

Irish connecting London

The largest single building project in the UK or Ireland - Wembley Park, London - is under construction and an Irish company, Magnet Networks, is to the forefront in the delivery of its tech needs. And make no mistake, technology is at the pulse of this new 'city town'.

Wembley Park which adjoins the stadium extends to 85 acres. Once complete, the development - delivered by developers Quintain - will have 5,000 residential units plus 1,000,000 sq ft of commercial office space. All of the homes will be delivered as 'build to rent'. It's the sort of scheme that will play a significant part in the provision of new homes in Ireland and the UK for the next generation. In many cases, the landlord of a 'build to rent' scheme will be a large institutional investor and the projects are self sufficient with many of the amenities and services needed for day-to-day living available on site.

This development is seen as a pilot scheme which will be replicated, if successful. At its core, the Magnet offering is a 20gb broadband network which controls a range of Internet of Things (IOT) devices such as number plate recognition. The technology is activated once the occupant enters the development, waking up the apartment, switching on the heating, the electricity, the entertainment, even the fridge and its contents, and identifying which staples need replenishing. It is expected that 70pc of the residential units will be under construction by the end of 2017.

As well as living accommodation and work environments, there will be both internal and external areas for recreation, including parks, cinemas, schools, shops and individual relaxation areas.

Pop Ups popping up

The changing face of the Irish property market was never more evident than at the Society of Chartered Surveyors (SCSI) recent annual conference in Co Kildare.

New, more efficient ways to conduct all aspects of property business were in evidence. Broadly speaking, all of these products shared a reliance on the internet for their delivery, which is none too surprising in the world we now live in. This is a world where 'The Internet of Things' is the only show in town.

One sector that is new to property is the Pop Up shop. Founded by Lucinda Kelly in 2016, Popertee specialises in bringing landlords and tenants together in Pop Up Shops, most of them in high street retail locations. Pop ups are fast becoming a target for international brands - the target market is identified, taking into account footfall and demographic and a temporary shop is created in a particular location.

It's something of real interest to landlords and agents where a retail premises in a good location is vacant for a period, perhaps because it is on the open market or awaiting planning permission for redevelopment. Normally, the rental term would be anything from two weeks to six months, and so it provides an income for landlords who are waiting for a longer term arrangement. The rent charged for these short-term tenancies tends to be significantly higher than those on the open market rent. It's possible that they will also begin to 'pop up' in large residential areas or in residential dwellings in commercial locations to promote particular causes.

This sector is growing internationally and will form part of marketing strategies with brands in future. The aim is more to do with making a brand splash then with selling product. Very novel.

Philip Farrell is a market commentator and property consultant

Sunday Independent

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