Is now the time to invest in Ireland?

Wednesday 10th October 2012

If someone told you in early 2007, at the height of the property boom, that you would be able to pick up a potentially high yielding home in Ireland at up to 70% below peak market value, would you have questioned their sanity?

Following a spectacular property boom from the late 1990s to 2006, property prices have indeed plummeted over the past five years. This has been caused by the recession in Ireland, tighter mortgage lending conditions, a dramatic fall in homebuyer demand and a chronic oversupply of homes, resulting in one of the severest property crashes ever experienced by a modern developed economy.

Although the first signs of the slowdown in the Irish property market date back to mid-2006, the start of Ireland’s property market crash is typically dated from when property prices started to fall in the second quarter of 2007.

Credit rating agency Moody’s warns that residential property prices in Ireland could plummet by a further 20% from today’s levels before the market finally bottoms out.

If accurate, this would bring the aggregate peak-to-trough fall to 60%, potentially leaving Ireland’s rate of mortgage arrears as high as 13.99%.

“The steep decline in house prices since 2007 has placed the majority of borrowers deep into negative equity,” the agency explained.

The Irish property market’s prospect for recovery has not been helped by Moody’s decision to lower its growth estimate for the Irish economy in 2012 to just +0.2%.

“In this weak economic recovery, it will be difficult for distressed borrowers to significantly increase their debt servicing capabilities and so arrears are likely to continue increasing,” it said.

But despite Ireland’s problems, a closer look at its property market suggests that now could be a good time to invest in this buyer’s market, particularly in some urban areas, such as Dublin, where property prices are stabilising and there are potentially high rental returns on offer.

Rising demand

The housing glut in Dublin is rapidly being absorbed by a surge in buyer demand, with many more investors looking to take advantage of the double-digit rental yields achievable in the Irish capital.

The collapse in Irish property values is attracting a growing number of potential purchasers, with residential property viewings having increased by 400% in the first quarter of this year (Q1 2012) compared to the final quarter of 2011, according to Savills.

The property consultant says that its latest viewing data suggests that homebuyers are returning to the Irish property market, particularly in the greater Dublin area, where the number of homes for sale is at its lowest level for five years.

Furthermore, there was an increase in the volume if new mortgage loans issued in the second quarter of this year (Q2 2012) compared to the same period in 2011, marking the first year-on-year increase since early 2006.

The latest IBF/PwC Mortgage Market Profile reveals that there were 3,225 new mortgages issued in Q2 2012, collectively worth €524m (£422m), up 22% on Q1 2012. Both the first-time buyer and mover purchaser segments - which accounted for 80% of all new mortgages - saw an increase in year-on-year activity for the first time in six years.

Pat Farrell, chief executive of the Irish Banking Federation, said: “These latest figures show that contraction in activity continues to slow significantly and the second quarter of this year has actually recorded modest growth in both first-time buyer and mover-purchaser activity – something not seen since the first quarter of 2006.

“Taken together with recent comments from property economists signalling stabilisation in house prices in key sectors of the Dublin market, we will be looking to the next quarter’s data for confirmation of the trend indicated in this quarter.

“The period to the year end is key as mortgages taken out after December 31st next will not qualify for mortgage interest relief.”

Colin Murphy, director of property investment firm Torcana, is not surprised that there has been a recent hike in the number of investors taking advantage of favourable buying conditions in Ireland.

He said: “In the past four years, property prices in Ireland have fallen faster and farther than anywhere else in Europe. The Irish property landscape has changed beyond all recognition and prime real estate can now be purchased at prices last seen in the 1990s.

“Rents in Ireland stabilised as far back as 2009 and this combination of a stable income and falling purchase prices has presented some incredible opportunities for cash buyers seeking tenanted properties. In my view, this is by far the most exciting real estate market in the eurozone.”

Murphy is not along in predicting that now could be a good time to snap up a property investment in Ireland.

Is the Irish property market bottoming out?

The head of the largest bank in the Republic also believes the Irish market is edging ever closer to bottoming out, with Dublin widely expected to lead the market recovery, thanks to a surge in demand from national and international homebuyers.

“We think the property market is beginning to stabilise, in particular in urban areas,” said Bank of Ireland boss Richie Boucher. “This time last year many of those who had mortgage approval were not taking up the mortgages, as they were still nervous about buying. Now, estate agents are saying there are more buyers than sellers in urban areas.”

Recent high property auction sales also indicate that market conditions are improving rapidly.

A recent Allsop Space in Dublin, for example raised €11.3m (£9.1m) with a success rate of 95% after 82 properties went under the under the hammer.

The auction room at Shelbourne Hotel was one of the busiest rooms yet as people from all over the world competed side by side for residential and commercial property located across Ireland, particularly in Dublin, sending out a very positive message about the property market in Ireland.

“It is clear that there is indeed a trading marketplace, and the level of competitive bidding and prices achieved are testament to the appetite for property that still exists in the Irish psyche," said Robert Hoban, director of Auctions, Allsop Space.

Those that could not make it to the auction bid remotely through proxy and telephone bids with over 60 remote bidders registered. #irishauction trended on Twitter further proving appetite for property in Ireland is unabated.

Contrary to popular assumptions, 52% of the buyers were purchasing with pre-arranged finance, many cash buyers having raised funds through syndicates formed by families and friends. This much needed liquidity is evidence of the green shots appearing in one of Europe's most devastated economies.

Auctioneer, Gary Murphy, commented: “Dublin residential performed very well today, as did the large commercial lots, with sale prices returned well in excess of reserves. It was an exciting rostrum experience.”

Irish property bargains

Whether buying property at auction or on the private treaty market, there is a wide selection of high quality distressed Irish properties.

The Irish real estate market is currently characterised by a stable rental market, a stagnant mortgage market and hugely discounted sales prices. In these conditions, if you know how to source the right property in the right location, you can secure a tremendous deal.

Over the coming weeks and months, Choices Today will be providing you with essential information, crucial in guiding discerning investors thinking of buying in Ireland real estate market.

But in the meantime, we are offering Choices Today readers access to a special 24-page Irish Property Market Report; an essential guide to buying distressed Irish property.

The report was compiled by Irishman Colin Murphy of Torcana property investment specialists, culminated in a recent and lengthy business trip to Dublin where he conducted 17 separate face to face meetings and visited more than a dozen potential property investments.

These high level meetings were held with property lawyers, tax specialists, pension trustees, property liquidators, bank officials, sales agents and high net worth individuals. The information gathered in these meetings and from his own independent research has been summarized in a special 24-page Irish Property Market Report which will is available for download by simply clicking here.


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